Leading microfinance firms such as CreditAccess Grameen, Fusion Finance, and Equitas Small Finance Bank are raising alarms over borrowers being over-leveraged, with some customers holding four or more active loans. The situation results from a post-COVID borrowing spree, loan disbursement pushing by employees, and outdated credit bureau data that fail to reflect borrowers’ existing liabilities.
CreditAccess Grameen revealed a high overlap among its borrowers, with 15.3% having loans from it and four or more lenders, leading to increased delinquencies. Udaya Kumar Hebbar, the managing director, reported a notable rise in overdue loans. Fusion Finance showed a decrease in customers with four or more lenders, from 10.5% in March to 5.7% in September, yet remains concerned over weakened credit profiles.
In response, the Microfinance Industry Network (MFIN) is tightening norms, reducing the allowable number of lenders per borrower from four to three. Sa-Dhan, another industry body, has suggested a household borrowing cap of ₹200,000 from all sources, following a July meeting to address the growing stress in the sector.
Challenges include the irregular updating of credit data and restrictions on using Aadhaar for borrower identification, complicating reliable background checks. Analysts highlight over-borrowing as a primary stress factor, compounded by issues such as joint liability group model degradation, indiscipline, employee attrition, climate effects, and loan waiver campaigns.
Recent regulatory actions, including the RBI’s suspension of Arohan, are expected to maintain pressure in the near term, underscoring the urgent need for protective measures in the microfinance sector.
Original Story https://www.livemint.com/industry/banking/credit-binge-by-small-borrowers-leaves-bitter-aftertaste-creditaccess-grameen-fusion-finance-equitas-small-finance-micr-11732526055558.html
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Publish Date: 2024-11-26 05:30:00
