MFIS'worries overstated, but it pays to be cautious

Microfinance institutions (MFIs) have become "far more rigorous" in credit assessment and lending since the new underwriting norms came in, says MANOJ NAMBIAR, managing director of Arohan Financial Services. Nambiar, who is also vice-chairman of MicroFinance Institutions Network, spoke with Raghu Mohan about how the industry is changing and why credit rating is customers' responsibility. Edited excerpts from a video interview.

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How does the microfinance sector look at this stage with talks of enhanced stress and weak rural demand?

The segment is defined as households with an annual income of less than 3 lakh per annum. Given the new underwriting norms with assessment of income, the new income limits, and the fact that debt repayment obligations of the household cannot be more than 50 per cent of the income, all of us are far more rigorous in terms of credit assessment. There is also a very strong credit bureau discipline with four bureaus tracking each loan that the customer has taken from any Reserve Bank of India (RBI)-regulated entity (RE). So, I would say that lending has become far more prudent and conservative.

Now, despite the ground-level checks which are done before a loan is given, we do see a slight up-tickin delinquencies. But that's something which I think is the after-effect of what happened during the pandemic.

The new portfolio which is being written is actually performing better than, or is equal to what it used to be pre-Covid.

But definitely, there's a need to be cautious when underwriting new loans.