As lending by microfinance institutions (MFIs) was never higher, it is no surprise that the country’s premier credit information company (CIC), CIBIL, has decided to get into this segment as well. In an interaction with FE, its chief operating officer Harshala Chandorkar speaks about challenges involved and how it is a win-win situation for MFIs, banks and borrowers. Excerpts:
Tell us about your new offering which is targeted at microfinance institutions (MFIs).
We have acquired all the data vis-à-vis lending that happens in rural areas, including those done by MFIs. Moreover, instead of making it available as a standalone repository, we have created a 360 degree view of the consumer, since many individuals graduate by becoming a mainstream retail borrower from a small MFI borrower. Hence, it’s very important for banks to know not just an individual’s lending relationship with MFIs but also that with the retail sector.
Is the profiling and the data that you have acquired for MFI borrowers any different from that of borrowers from banks? Does the fact that most of the MFI lending tends to happen to joint liability groups (JLGs) a challenge?
The data points remain the same. Most MFI borrowers have a voter ID and an Aadhaar number. The challenge, however, arises when it comes to other aspects. Names tend to be very common in small villages. Addresses are not as strong and differentiated as that in metros.
It’s a fact that MFI lending mostly happens to JLGs or self help groups (SHGs). But information about the people involved in these groups is easily available. So, we are being able to go to even the next level in terms of granularity. In fact, about 80-85% of MFI borrowers are in our database now.Is it more of an effort to help banks tap MFI customers instead of helping the latter take a more informed decision?
Not really. One of the main reasons for the Andhra Pradesh MFI crisis of 2009 was the fact that the same borrower was approached by four-five MFIs in the region. If we want to avoid that kind of a situation, we need to provide the right information to MFIs. Otherwise, there’s no way for a MFI to know if a borrower has borrowed from multiple MFIs/banks. We have also witnessed that 10-15% of an MFI’s borrowers regularly migrate to banks. In such cases, it’s critical for a bank to know about one’s borrowing from MFIs. So, our repository is a win-win for all.
With the Reserve Bank of India (RBI) deciding to bring peer-to-peer (P2P) lending platforms under its purview, do you expect a change in the way individual’s credit appraisals are done, particularly given that such platforms are probably going to entirely bypass institutions like yours?
I think it will be beneficial for everyone if all the lending via P2P platforms is reported to credit information bureaus as it will help even P2P lenders to take informed decisions when they decide to lend to an individual. Secondly, the non availability of P2P credit information to banks might make borrowers over leveraged.
What about the argument by P2P platforms that the credit score by agencies such as CIBIL is about an individual’s past and doesn’t say much about their present?
P2P lending platforms depend a lot on social media data, which is prone to manipulation. So, although there’s a lot of buzz over it at present, one really has to wait and watch if such systems work. On the other hand, ours is a tried and tested model that has worked really very well. So, it would be great if all the borrowings through P2P lending platforms also come under the fold of credit information reporting, because we certainly don’t want a crisis in the P2P lending industry at this stage.
