Micro Finance Industry Network (MFIN), a self-regulatory body, has tightened its loan underwriting guidelines for its members, amid concerns about over-indebtedness of borrowers.

The MFIN said the fresh norms will take care of current challenges in lending, wherein a lender does not get data on monthly outflows from a household on account of previous loans and even 'bullet repayments' — where the loan is paid at one go.

The MFIN added that while microlenders are carrying out varying practices currently, it has issued the guidelines to ensure "uniformity in the treatment", and help lenders to have a robust underwriting policy dealing with cases of bullet repayments and missing EMIs.

The guidelines look to address concerns over some MFI borrowers taking excess loans.

There have been cases where a single borrower has been given over five loans.

A PTI report quoting industry participants said that as the practices get tightened, there will be stress on asset quality and also loan growth, which they will experience in the short term.

Analysts also flag events such as state elections, which led to the deterioration of credit culture in the past.

The MFIN statement added that Reserve Bank of India’s current regulations mandate an accurate estimation of the outflows on account of repayment of monthly loan obligations of the borrower household. Monthly repayment obligations should not exceed 50 per cent of the monthly household income.

Lenders depend on credit reports generated from credit information companies for estimating the outflow from a household.