At a recent microfinance conclave in Mumbai, Sa-Dhan, a leading self-regulatory organization (SRO) for the industry, emphasized that microfinance institutions (MFIs) must continue to uphold strict lending standards. Despite signs of recovery and resilience within the sector, the SRO argues that maintaining these “guardrails” is essential to protect vulnerable borrowers and ensure the industry’s long-term health.
Strengthening Responsible Lending The existing guardrails were established to prevent the aggressive over-leveraging that caused significant distress in the sector over the last two years. Key regulations currently in place include:
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Lender Limits: Restricting a single borrower to a maximum of three lenders.
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Debt Caps: Capping the total indebtedness of an individual borrower at ₹2 lakh.
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Delinquency Checks: Restricting new credit for customers who already have significant existing defaults.
Focus on Sustainability and Trust Sa-Dhan Chairman K. Paul Thomas highlighted that while the sector is evolving, a steadfast commitment to transparency and customer well-being is required to build lasting trust. “These guardrails will help build greater trust and long-term sustainability,” Thomas noted, stressing that governance remains a top priority.
Looking Ahead To further support the industry, Satish Marathe, a member of the RBI’s central board, proposed the formation of a dedicated steering committee. This body would be tasked with identifying and addressing the ongoing challenges faced by MFIs, ensuring that the sector continues to support the “bottom of the pyramid” without compromising financial stability.
