Microfinance Institutions Network (MFIN) gears up to create credit bureau

Microfinance Monitor, March 11, 2010: To enhance responsible lending and institutionalise information sharing process, 31 NBFC – Microfinance Institutions have formed into Microfinance Institutions Network (MFIN), a self-regulatory body of NBFC MFIs to work with regulators to promote transparency in microfinance lending and to achieve their ultimate mission of financial inclusion.

MFIN arm Alpha Micro Finance Consultants P Ltd (Alpha) that was set up recently has invested Rs. 2 Crore in setting up a credit bureau to improve credit risk management within the sector and ensure multiple borrowing and check over indebtedness. This will reduce the risk of MFIs which have to extend loans to customers without adequate information about their indebtedness. MFIN will work closely with the government credit bureau CIBIL and also High Mark, enabling all members of MFIN to contribute data to these credit bureaux.

MFIN has also defined a Code of Conduct which focuses on fair practices with borrowers including promoting transparency, fixing overall lending limits at client level, data sharing, recruitment practices, whistle blowing and enforcement mechanisms. Members have committed to communicate interest rates on reducing balance method and other charges clearly to members while following fair recovery mechanisms.

A whistle blower policy allows violation of Code by any member to be reported to the Enforcement Committee which would investigate and take action against the erring MFI. An Ombudsman is also being appointed for any appeal against the Enforcement Committee decisions and the final action in case of continued violation of the code would be cessation of membership of MFIN for such erring member, said a press release.

Speaking on the occasion, Vijay Mahajan, President, MFIN and Chairman of Basix said “MFIN is the response of NBFC MFIs in the country to concerns of over borrowing by clients and unregulated credit practices in microfinance sector. This level of unity and commitment to client protection is unique and has not been seen in any other sector in India. MFIN members now collectively represent almost 80% of the entire microfinance sector in the country. We are confident that a co-ordinated and united approach from the members of MFIN would enable us to support the Government’s initiative of taking forward on a significant manner the process of financial inclusion to the masses in a transparent and sustainable basis.”

MFIN is supported by Omidyar Network, a philanthropic investment firm, and the International Finance Corporation (IFC), a member of the World Bank Group. Omidyar Network is funding the project to support MFIN in its above efforts. IFC is providing advisory services and technical consultancy to Alpha in its effort to get the credit bureau services being made available to the MFI sector.

The Board of MFIN consists of Vijay Mahajan (Chairman, Basix) as Chairman, along with Suresh Gurumani (CEO, SKS Microfinance), Chandrasekar Ghosh (CEO, Bandhan), Rekam Jayasurya (CEO, Asmitha), Shubhankar Sen Gupta (CEO, Arohan) , Ajay Verma (MD & CEO , Sahayata Microfinance), H P Singh (CMD, Satin Creditcare Network), Samit Ghosh (CEO, Ujjivan) and P.N.Vasudevan (MD, Equitas Microfinance) as Directors.