Posted on December 22, 2009 - by James
India: Microfinance lenders to stop multiple loans…
Among key decisions taken at a meeting in Mumbai on 7 December were not to offer above Rs50,000 to any single borrower and not more than three lenders lending money to one individual.
Currently, the size of a micro loan is capped at Rs25,000, but borrowers often take three or four times this from multiple lenders, putting pressure on themselves. While delinquency is low in large microfinance firms, there is apprehension they may be hit by loan losses.
Between 2005 and 2009, the microfinance industry grew 13-fold, from Rs900 crore to Rs11,700 crore. In 2009 alone, some 230 microfinance institutions added 8.5 million borrowers, taking the total to 22.6 million. Loan assets rose 97%, from Rs5,950 crore to Rs11,734 crore, amid the credit crunch.
Microfinance firms lend to subprime borrowers and these tiny loans are not backed by any collateral. Once a borrower’s overall debt to such institutions is capped, the risk of default will come down.
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