Sa-Dhan, a self-regulatory organisation of microfinance lenders, has issued additional guidelines for its members covering areas of over-indebtedness, pricing of loans and responsible financial practices.

“Households with microfinance exposure beyond ₹200,000 should not be given additional loans. The RBI-prescribed 50 percent FOIR (fixed obligation to income ratio) continues to apply,” Sa-Dhan said in a statement.

“Every microfinance loan should mandatorily do a comprehensive credit bureau check at the household level. A credit bureau report for the client and spouse / co-applicant is also mandatory to check on retail and microfinance loan obligations.”

Processing fee will be capped at 1.5 per cent (excluding applicable taxes), and lending institutions should follow transparent practices when pricing loans.

Sa-dhan said components of the rate of interest — cost of fund, operating expenses, risk margin and margin — should be well defined and in compliance with guidelines issued occasionally.

The RoI (return on interest) should be justifiable and approved by members of the board.

The MFI body proposed measures to avoid the over-leveraging of already stressed borrowers and reduce the chance of further pushing the borrower into a debt trap.

No loan should be given to any client who is NPA (dues of more than 90 days) with any lender (regulated entity) with a loan amount outstanding of more than ₹3,000.

Efforts should be made to reduce delinquency to 30+ dpd (days past due) over time to improve clients financial status.

The end use of loans is to be verified to ensure proper utilisation of loans for the requested purpose, the statement.

It would be mandatory to do employee bureau checks for each staff member before hiring considering the attrition rate among entry level staff and prevent instances of fraud.

“We are confident that these guidelines will help to promote healthy and sustainable growth of the microfinance sector. They will encourage greater transparency,” Jiji Mammen, ED and CEO Sa-Dhan said.