India’s microfinance industry showing signs of overheating, again
Mumbai: India’s microfinance industry is showing signs of overheating in a possible reminder of the crisis that hit micro lenders in Andhra Pradesh in 2010.
According to Crif High Mark Credit Information Services, a credit bureau, around 1.26 million microfinance borrowers had received top-up loans over and above their existing loan amounts as of December end. According to Crif High Mark, top-up loans are defined as those with a ticket size of less than Rs10,000 and where customers have at least two active loans. Typically, such a loan is taken out for up to nine months.
Worryingly, 70% of these borrowers have at least three loans running at the same time. While Reserve Bank of India guidelines mandate that not more than two microfinance Institutions (MFIs) can give loan to the same borrower simultaneously, the guidelines are silent about borrowing from other lenders. This means many people take out loans from multiple sources.
“Average exposure for these customers (those who had top-ups) is Rs45,400 which is more than the double of national average figure, Rs22,000. Also, 17% of these customers with top-up loans are servicing five loans at a time,” said Kalpana Pandey, managing director and chief executive officer, Crif High Mark.