Sa-Dhan introduces credit assessment framework for microfinance borrowers

Sa-Dhan, a self-regulatory organisation for the microfinance sector, Thursday said it has introduced the credit assessment framework (CAF) for microfinance borrowers.

Over the past one-and-a-half years, Sa-Dhan has worked to introduce a conducive and effective framework that will enable income assessment and risk profiling of borrowers, according to a statement.

The CAF has been developed based on national and international models of poverty assessment like PPI (Progress out of Poverty Index) and Poverty Assessment framework of National Rural Livelihoods Mission, Government of India.

The framework will help to supplement and improve the existing income assessment model of MFIs with verifiable wellbeing indicators, utilise and integrate existing data points of clients available with MFIs and provide a credit worthiness score (CWS), risk profiling for each client.

It will also promote risk-based loan pricing and loan sizing and prevent over-indebtedness of vulnerable and low-income households.

"The credit assessment framework will not only promote client protection but will also help MFIs in determining loan sizes based on risk profiling thereby increasing repayment rates and reducing risk.

"CAF and its components will help MFIs in strengthening their existing credit appraisal system," Sa-Dhan's Executive Director P Satish said.

Once implemented, the framework will aid in creating a conducive lending and repayment environment for the industry.