MFIN defers capping lenders to each borrower by three months, other covenants come into effect

MFIN has deferred to April 1 its plan of implementing a cap on lenders to each borrower.

Microfinance Industry Network (MFIN), the self-regulatory body for microfinance, has confirmed to have deferred to April 1 its plan of implementing a cap on lenders to each borrower, citing time required to change the IT and back-end system.

Speaking to CNBC-TV18, MFIN's Alok Misra said, "changes to IT and engine room systems will take time." He added that MFIN will implement the lending cap in three months' time, with 'other covenants being implemented from January 1'.

Earlier, on January 2, Livemint had reported citing people familiar with the development that MFIN deferred the plan to implement limiting lenders per borrower to three starting April, as it would give them enough time to manage delinquencies.

On October 17, RBI had taken action against four NBFCs and NBFC-MFI, citing 'material supervisory concerns', and asked entities to cease and desist sanction and disbursal of loans.  These entities were Asirvad Micro Finance, Arohan Financial Services, DMI Finance, and Navi Finserv, as per central bank's notification. RBI said it had observed concerns in the pricing policy of these companies in terms of their weighted average lending rate (WALR) and the interest spread charged over their cost of funds, which were not in adherence with regulations.

Read More: RBI crackdown on few NBFC-MFI not industry wide issue, says MFIN CEO Alok Misra

Subsequently, MFIN had introduced the new cap in November, with key changes being the measure to reduce number of lenders to a borrower to three, from previously four. MFIN also recommended to cap the indebtedness of a MFI borrower to Rs 2 lakh.

MicroFinance Institutions Network (MFIN) and Sa-Dhan - the SROs for microfinance sector - had last year introduced proactive steps, incuding adoption of certain guardrails.

A recent note by Emkay had said that the MFI stress is likely to inch up during Q3FY25, even as MFIN tightens guardrails.