Microfinance Institutions Revamp Lending Practices Amid RBI Scrutiny

The Microfinance Institutions Network (MFIN) has announced changes to improve responsible lending following Reserve Bank of India's concerns. Starting January 1, measures include limiting client borrowings and capping total indebtedness. Interest rates and lending standards will be tightly monitored to enhance sector resilience.

The Microfinance Institutions Network (MFIN) has unveiled a series of reforms aimed at responsible lending, following scrutiny from the Reserve Bank of India (RBI). The changes, taking effect from January 1, are set to reshape the microfinance landscape.

MFIN members will limit a client's borrowings to three Microfinance Institutions (MFIs) and cap the total indebtedness including unsecured retail loans at Rs 2 lakh. This move aims to streamline lending practices and increase borrower protection.

Further measures include stricter controls on interest rates and underwriting standards. By March 2025, MFIN aims to integrate PAN for half of borrower accounts, underscoring a commitment to transparency and growth in the sector.

(With inputs from agencies.)