Credit bureaus help Microfinance institutions bring down loan defaults

MUMBAI: Microfinance institutions (MFIs) have been able to bring down the rate of loan defaults three years after an Andhra Pradesh crackdown led to a crisis in the industry. Lenders have become more cautious about disbursals as they seek out borrowers’ credit histories before deciding on an application. The information is sourced from credit bureaus Equifax and High Mark India, which have access to around 11 crore loan accounts sourced from different lenders that are their members.

In the last two years, data for about 8 crore MFI borrowers have been added, said Chandra Shekhar Ghosh, chairman and managing director of Kolkata-based micro-lender Bandhan, adding that this was a “world record”. Delinquency, or defaults by number of loan accounts older than 30 days, nearly halved to around 0.8% in October from more than 1.5% in the year-ago period, according to the latest data supplied by Equifax India to ET. According to High Mark India data, in comparison with 2012, delinquencies seen as a function of portfolios that are 60 days overdue, have fallen by a good 2% on the whole.

The 2010 crackdown in Andhra Pradesh, which dominated the MFI business at the time, followed complaints of coercion being used to get borrowers to repay their loans and reports that some of them committed suicide because of this. In response, the state government enacted a law to rein in the micro lenders, which led to a surge in defaults.