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  • Microfinance Sector and Credit Bureaus in India

    Microfinance in India

    The world of Microfinance is perhaps the most underrated aspect in an economy, with it playing a crucial role in the development of Indian economy. With a majority of the population working in the unorganised sector, microfinance opens the doors to numerous possibilities, helping the nation utilise its resources effectively. Microfinance, as the name implies is finance in small scale, targeting those with a low source of income, offering financial solutions to the underprivileged at decent rates.

    Relationship between Credit Bureaus and the microfinance sector

    India is on the verge of economic process and a number of Credit Bureaus are establishing base here, with the RBI receiving applications for the same at regular intervals. This industry, while catering to the underprivileged, has run into rough waters in the past, with a number of its clients defaulting on payments, leading to the closure of multiple such institutions. With millions of clients and hundreds of crores at stake, these microfinance institutions need assistance, which is where credit bureaus come in. Loan defaulting causes losses to the tune of crores every year and each default puts added pressure on the functioning of the MFIs.

    Equifax and the microfinance sector

    Credit Bureaus like Equifax India offer dedicated products and services for the microfinance sector, ensuring that they have access to information and resources which could lead to their growth. Some of the typical products offered by Equifax catering exclusively to MFIs are mentioned below.

    • Equifax Microfinance Credit Information report – This report contains the basic information of a MFI consumer, including his/her identification, credit details, inquiries, etc. A MFI can use this information to gauge the credit history of an applicant and figure out if he/she is worthy of a loan.
    • Equifax Microfinance Portfolio Review – Credit bureaus help MFIs review portfolios, providing warning indicators and strategies which they need to focus on in a market.
    • Equifax Microfinance Score – This score is extremely useful, predicting the likelihood of a borrower defaulting on a loan. Given the number of defaulters in the country, this one score can help MFIs save millions.

    CIBIL offers Company Credit Information Reports, Market Insights, Bureau Analyzer, TransUnion Score and Portfolio Reviews to aid and guide Microfinance Institutions.

    Experian, another emerging player in this field, offers various products which cater to microfinance institutions such as collections, customer targeting, customer management, analytical solutions and business information services.

    HighMark, the fourth member in this group, has a dedicated Microfinance Bureau which caters to specific needs of this segment. It offers a number of products and services, including the PERFORM score, Portfolio management, alerts, geo analytics consulting and the CRIF High Mark’s Credit report.

    While it is hard to pick a clear winner among these credit bureaus, increased competition has ensured that MFIs have access to more data on their borrowers to make informed lending decisions in the long run.

    Impact so far

    The year 2010 was a turning point in the Indian Microfinance Industry, thanks primarily to a scandal which had the power to change the face of this industry, and change it did. There were millions of defaulters with the loan amount totalling to thousands of crores, thanks primarily due to indiscriminate lending and borrowing. With harsh collection practices resulting in a number of suicides, the RBI and state governments stepped in, bringing about regulations which heralded a bright future.

    The RBI promulgated new regulations, with Credit Bureaus being formed to assist MFIs in their undertakings, ensuring that the future has no such problems. These credit agencies, have, to an extent been able to turn things around, providing adequate information to both consumers and MFIs, bringing an end to indiscriminate lending and providing value added products to MFIs.

    Today, these credit companies have become integral components in our society, playing a key role in strengthening the economy.

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