Microfinance Sector and Credit Bureaus in India
Introduction to Microfinance in India
Traditionally, banks and other finance institutions are unwilling to lend to low income individuals, or unskilled workers in the informal or formal sector. One of the reasons for this is the inability of borrowers to provide collateral or an appropriate guarantor. Other reasons include lack of data on the repayment capacity of the person. There is also a lack of access to financial infrastructure and services in remote areas. This is where microfinance comes in— it provides solutions that cater specifically to this underserved group.
Microfinance in India emerged in order to empower this group and enable them to have access to credit. People in rural areas do not have easy access to institutionalized credit from commercial banks. Microfinance institutions (MFI) provide small loans and other credit-related services to these individuals. There is regular contact and follow up between the MFI and the customer. It also offers products such as insurance, remittances, and pensions by tying up with mainstream providers. Repayment can be done on a weekly or monthly basis.
The microfinance industry in India has shown growth in the past few years partly due to the participation of commercial banks. The Indian microfinance sector is among the fastest growing in the world. A sizable number of individuals depend on this sector to meet their financial needs. Needless to say, as with any banking system, the microfinance sector has—in the past—witnessed some disorder primarily due to non-payment of dues by many borrowers. However, the arrival of credit information companies in India has helped alleviate this situation.
Role of Credit Bureaus
Equifax India, High Mark Credit Information Services Pvt. Ltd and Experian, along with CIBIL are other the four credit bureaus in operation in India that cater to the microfinance segment apart from rendering a host of other credit related services.
Equifax Microfinance credit bureau:
Equifax India has a separate bureau that caters to the Microfinance segment. It collects and gathers client data to enable smooth processing of microloans and other microfinance products. With Equifax microfinance credit bureau, the microfinance products and allied tools are rendered with the aim to gather credit data on microfinance borrowers and provide them in a readable and highly understandable format to MFIs, who could in turn assess the credit-worthiness of potential borrowers.
Equifax Microfinance bureau was launched as a separate dedicated bureau in May 2011 to address the growing needs of the Microfinance Institutions in India. It has been set up by the bureau to help curb delinquency rates in microfinance, and also to help microfinance institutions make better business decisions. Equifax works closely with Microfinance Institutions Network (MFIN) and has effectively set up a Microfinance Institution bureau framework. By use of the highly adaptable and customizable technology platforms Equifax has enabled the swift setup of a microfinance network nation-wide.
Equifax Microfinance Institution bureau offers access to data from member microfinance institutions amongst other related products. Member microfinance institutions report to the credit bureau on a periodic basic to provide the bureau with relevant information on their consumer’s credit behavior and repayment pattern. Till date, it has over 1300 member institutions and is regularly adding new members and corresponding data into the credit bureau.
The microfinance bureau wing of Equifax caters to the needs of MFI with products like Microfinance Credit Information report, Microfinance Portfolio Review as well as additionally providing a microfinance score to help businesses in the microfinance segment to make better lending decisions.
About Microfinance Credit Information Report (CIR)
The microfinance CIR is a usable and readable consumer credit report just like a normal credit information report would be, but with details specific to the microfinance segments. It is backed by advanced search and match algorithms. This report helps lenders assess risk of a potential customer as it gives a bird-eye view of the client, along with a detailed report on credit behavior, like repayment track, active credit accounts etc.
The Equifax consumer credit database in the microfinance segment covers all regions in India. The Equifax Microfinance credit information report includes Identification and contact details of the prospective customer, his credit summary, his recent activity with regards to credit and credit utilization, a comprehensive Account Details Section which lists both past and present credit accounts of the consumer and data on the repayment track of each of those accounts, and the Inquiries Section which gives the details on the number of inquiries made on a consumer.
Microfinance Portfolio Review
The Microfinance Portfolio Review report provides an insight into various Microfinance institutions that helps drive business-specific decisions for a financial company in the microfinance sector. The Microfinance Portfolio Review report helps understand and provides a comprehensive report on the following:
Competition - the review allows an MFI to see where it stands as compared to other MFIs operating across the chosen dimension.
Early warning indicators – identifying any declining trends to enable the MFI to cut losses early.
Entry Strategy- to identify any possibly lucrative untapped market for the MFI to focus on, the performance metrics of that particular market and the potential market size.
Equifax Microfinance Risk Score
The Equifax Microfinance Risk Score is similar to the Equifax Risk Score in the sense that it helps predict the likelihood or possibility that a consumer would commit defaults or miss payments within the 6 months of taking out a loan product. It makes use of enhanced technology to facilitate speedier decision making process and help lenders make better informed lending decisions. This scoring solution provides lenders with an enhanced risk perspective which leads to increase in profitability as it reduces the exposure to risk.
Microfinance institutions use microfinance credit bureaus for credit information on potential customers. Equifax uses its extensive member base to collate accurate information about users, ensuring that microfinance organizations get a comprehensive picture of their potential borrower and are able to operate with greater efficiencies and productivity.