Micro lenders cap total loans to ₹1 lakh per borrower

Lenders engaged in micro lending, including large banks such as IndusInd and Kotak Mahindra, have come together to safeguard their loan asset by preventing over-leveraging of micro borrowers. A common ‘Code for Responsible Lending’ has been unveiled on Monday to bar more than three lenders offering loans to a single borrower and cap the size of total lending to ₹1 lakh per borrower. This revised code has been in the works for the past year to expand the scope of it from a mere code of conduct for NBFC-MFIs to a code for the entire micro-credit industry.

“The introduction of the Code for Responsible Lending in microcredit is momentous for the sector. This is probably the first time globally where different entities are coming together to self-regulate in a voluntary fashion,” said Manoj Kumar Nambiar, chair at Microfinance Institutions Network (MFIN), the industry body for NBFC-MFIs.

At present, a diverse set of lenders such as NBFC-MFIs, banks, small finance banks, NBFCs and non-profit/section 8 MFIs extend micro loans to over five crore women borrowers.