Survarna Saha, a domestic help, is hardly known beyond her neighborhood in one of the lesser known localities of Kolkata. Till recently, her sole documented identity was locked in a carefully preserved Elector's Photo Identity Card (EPIC). Today, details about Saha, much beyond her EPIC, are just a click away. It's not Aaadhar, the much trumpeted Unique Identity Card scheme, that has made Saha so conspicuous but a loan from a microfinance institution.
With the credit bureau for microfinance institution now fully functional, details of millions of the smallest of small borrowers across India are now being documented, with the potential to create one of the largest databases in the years to come.
In about 18 months' time, credit bureaus have been able to gather information about 100 million loan accounts of about 25 million individual customers from about 42 MFIs, according to data from Micro Finance Institutions Network (MFIN). All these loan accounts make a gross loan portfolio of Rs 21,300 crore as on June 2013, a growth of nearly 17% over 2012-13.
Notably, after the MFI crisis, West Bengal, now has the largest branch network of MFIs, accounting for over 16% of the all-India branch network.
At present, two credit bureaus--Equifax Credit Information Services and High Mark Credit Information Services—collate data from MFIs. The data is being used to assess overindebtness and instances of multiple lending among the borrowers.
According to RBI stipulations, not more than two NBFC-MFIs should lend to the same borrower with an individual cap of Rs 50,000. Thus, between 10-30% of the applications get rejected on grounds of default history, over indebtness or multiple lending, according to Samit Ghosh, founder and CEO of Ujjivan Financial Services.
A microfinance credit bureau helps distinguish between good (low risk) and bad (high risk) borrowers by looking at their professions, skills, loan, and repayment histories, just like any other credit bureau.
However, there are a number of challenges in collating data from small borrowers. While several MFIs submit data to the credit bureaus on a weekly basis, only a few provide data on a monthly basis, which limits the scope of the database, according to Ghosh. Again, lack of uniformity in data structure also poses a challenge in the process.
Yet, the biggest challenge in having a coherent database of small borrowers comes from other non-government organizations, credit cooperative societies and self help groups, which do not furnish data to the credit bureaus.
“MFIs would capture only a part of the rural finance data. The SHG have three times' bigger reach compared to the MFIs. That data is completely missing and there is a big gap,” says Ghosh. The MFIN has also written to the Reserve Bank of India, calling for the need to include entities other than MFIs to participate in the credit bureaus.
As of 30th June 2013, loan outstanding per client stood at Rs 8,615, an increase of 9% over Q1FY 12-13. On an average, an MFI branch currently serves 2,671 clients, against 2,354 in 2012-13.
Top 5 states (West Bengal, Tamil Nadu, Andhra Pradesh, Karnataka and Maharashtra) account for 58% of the MFI branch network in the country.