NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Wednesday, August 19, 2015

Three years after India’s first credit bureau for microfinance institutions (MFIs) opened shop, teething troubles continue to prevent lenders and borrowers from making full use of it.

When CRIF High Mark Credit Information Services Pvt. Ltd started in 2012, the aim was to gather credit data on microfinance borrowers and provide them to MFIs, who could then assess the credit-worthiness of potential borrowers. Equifax Credit Information Services Pvt. Ltd, another MFI credit bureau, followed suit in 2013.

These bureaus claim that their reports have helped slash delinquency rates in microfinance, but lenders tell a slightly different story.

“Unlike a bank, which can depend on a credit report for retail loans solely, we cannot do that,” said Kartick Biswas, managing director of Uttrayan Financial Services Pvt. Ltd, a micro-lender.

The reason: Credit reports of microfinance borrowers have no data on bank loans taken. They also do not have data on what individuals may have borrowed from MFIs as part of self-help groups (SHGs). Consequently, lenders remain wary of extending loans on the basis of such reports since they cannot get a clear picture of the credit history of potential borrowers.