What were the key takeaways from the AP crisis? How is the industry coping with these challenges?
The crisis, which erupted sometime in 2010, has taught some important lessons. The issues of multiple lending and excessive borrowing came to the fore. It also forced MFIs (microfinance institutions) to take a peek into the code of conduct being followed by them. To overcome the problems of multiple lending and over-indebtedness, we are submitting client records to the credit bureau as mandated by RBI. Nearly 100 per cent of our records are now available with the two credit bureaus — Equifax and High Mark Credit Information Services Ltd. All MFIs now refer to the borrowers’ credit history before taking a lending decision.
This apart, a code of conduct has been deployed for the industry and is being actively monitored by the Microfinance Institutions Network (MFIN). As per the code of conduct, all MFIs have to ensure transparency in interest rates, processing fee and other terms and conditions pertaining to any credit extended. They are also mandated to provide these terms and conditions in vernacular language and are asked to keep an ethical behaviour towards their borrowers.
So do you think the crisis is behind us? What is the way forward?