Borrowers taking loans from microfinance institutions (MFIs) may have
to pay back one loan before taking another. They may no longer be
allowed to indulge in “multiple borrowing” from the same MFI or from
more than one. Similarly, MFIs may also not be permitted to lend to an
individual who has an outstanding loan.
The Government is likely to tackle this issue through the Micro
Finance Bill by incorporating provisions that will help identify
wrong-doers and discourage these practices, Finance Ministry sources
told Business Line.
In this regard, the Ministry is holding talks with the Unique
Identification Authority of India to evolve a system to identify persons
availing themselves of multiple loans so that they will not be eligible
for loans if they do not repay. The Bill, which is in the pipeline,
aims to regulate MFIs.
The Ministry has learnt of instances where people have taken more
than one loan from MFIs under different or bogus names. It has noted
cases where persons have taken advantage of the differential rates of
interest offered by different institutions and used the loan amount from
one to pay the other.
The Ministry has observed that owing to competition, some MFIs have
resorted to multiple-lending without looking at the repayment ability of
their customers. There have also been instances of ‘ever-greening' of
loans by MFIs where they have provided fresh loans to borrowers to help
them repay the old ones, instead of defaulting. MFIs allegedly resort to
such practices in a bid to grow fast, increase profits and investments
and even to go in for initial public offers.
Industry sources said MFIs would be soon forced to write-off loans in
the multiple-lending category. Sa-dhan — the country's largest umbrella
body of MFIs — had attempted to create a national database of
district-level MFI operations to prevent an overlap of more than one MFI
operating in the same area and instances of multiple-lending. But the
exercise is yet to take off as MFIs have not furnished details, they
“Sa-dhan members have decided to move towards reducing loan size per
household to a limit of Rs 50,000 and practicing within 30 days the
Sa-dhan code of conduct on transparency, governance, anti-coercive
practices and training of field workers,” Mr Mathew Titus, Executive
Director, Sa-dhan, said.