Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Industry / Banking/  MFIN plans to approach RBI seeking relaxed norms for borrowers
BackBack

MFIN plans to approach RBI seeking relaxed norms for borrowers

MFIN plans to ask RBI to allow clients to borrow from three entities, including small finance banks and universal banks, instead of the current limit of two

The RBI in 2011 barred more than two MFIs lending to the same borrower at any given time. Photo: Aniruddha Chowdhury/MintPremium
The RBI in 2011 barred more than two MFIs lending to the same borrower at any given time. Photo: Aniruddha Chowdhury/Mint

Mumbai: Microfinance Institutions Network (MFIN), a self regulatory organization for the microfinance industry, plans to approach the Reserve Bank of India (RBI) to ease restrictions on borrowers.

The group plans to ask RBI to allow clients to borrow from three entities, including small finance banks and universal banks, instead of the current limit of two. The RBI in 2011 barred more than two MFIs lending to the same borrower at any given time. Besides, the total loan from the two can’t exceed Rs60,000 in the first cycle of lending for a first-time borrower and Rs1 lakh in subsequent cycles.

“We need a modification of existing regulation so that the two-MFI lender norm is relaxed to any three lenders. The focus of the effort is to build a platform which is sector specific and entity agnostic in recognition of the fact that MFI borrowers represent low-income households with certain vulnerabilities," said Ratna Vishwanathan, chief executive officer of MFIN.

Microfinance customers have the option to borrow from banks, non-banking financial companies or others in addition to two MFIs. Apart from MFIs, RBI norms are silent on borrowing from other lenders.

“MFIN has set a cap of Rs60,000 which is more relevant than the number of borrowers who can lend to a customer. As a small finance bank, we will still abide by RBI guidelines of Rs1 lakh loan cap," said Samit Ghosh, managing director and chief executive officer of Ujjivan Financial Services Ltd.

With seven MFIs becoming small finance banks and Equitas Small Finance Bank having already started operations, a borrower from one of these entities can potentially take another loan from an MFI without breaching the RBI limit.

“The code of conduct states that a microfinance borrower cannot take more than two loans irrespective of the type of institution and loan cap is fixed at Rs60,000. Any change in conduct has to be jointly done by Sa-dhan and MFIN," said P. Satish, executive director of Sa-dhan.

“By changing this code of conduct, it looks like we are trying to regularize the irregularity committed by certain institutions which is not a healthy step," Satish added.

Gross loan portfolio of microfinance sector was Rs60,165 crore at June end, an 89% growth from a year earlier while the client base rose by 48% in the same period, according to MFIN data.

“RBIs approach to regulation has been institutional rather than sectoral which has created conditions for regulatory arbitrage between banks and MFIs. Fixing a cap of three loans will lead to some amelioration of this position. Self help group (SHG) data at an individual borrower level would still be the missing piece, and an important piece given the high overlap between SHGs and JLG (joint liability group)," said Alok Prasad, former chief executive officer of MFIN.

Banks hold one-fourth of gross loan portfolio of Rs92,000 crore for JLG as of September 2016, according to data compiled by Crif High Mark Credit Information Services, a credit bureau.

SHG is typically a group of 15-25 women which borrows from the bank. Individual data for SHG members is not widely tracked at industry level. Gross loan portfolio for SHG stood at Rs.57,119 crore at the end of March according to national bank for agriculture and rural development (NABARD) data.

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 12 Dec 2016, 01:29 AM IST
Next Story footLogo
Recommended For You
Banking Stocks
₹1,053.6-0.5%
₹1,440.70.52%
₹1,0841.08%
₹122.751.3%
₹734.052.53%
Switch to the Mint app for fast and personalized news - Get App