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What is Microfinance?

Microfinance or microcredit is a type of financial service comprising of savings, loans, insurance and reinsurance This service is provided to entrepreneurs and small businessmen who do not have access to regular sources of capital income from banks and lending institutions.

Banks and financial institutions usually do not provide an extended line of credit to low income businessmen, retailers, entrepreneurs, etc. from the informal or formal sector. The primary reason for rejection is the low income of the individual. Low income generally coincides with the inability to pay back money on time. Additionally, banks do not have any data regarding the credit history of these individuals as well. To counter such incidents, the concept of microfinance was successfully introduced in rural as well as urban India.

People in rural and remote areas do not have easy access to banks, and microfinance seeks to cater to such individuals. Microfinance and microcredit are provided by Microfinance Institutions (MFI). One of the many advantages of a Microfinance Institutions is that it acts like a complete bank to the customer. Apart from credit lending, an individual can also apply for insurance, remittances, and pensions.

Though there has been a bit of disorder in the recent past among microfinance institutions, this is primarily because of lack of data and infrastructure regarding the credit history of borrowers. This is where credit information bureaus play a role in the microfinance industry.

Information about CIBIL Microfinance Credit Information Bureau

In order to reduce the list of defaulters, TransUnion CIBIL has set up a new division called the CIBIL Microfinance Credit Information Bureau, specifically for microfinance institutions. CIBIL has decided to create a database of 50 million MFIs. This will help MFIs and banks determine the credibility of small and medium sized enterprises who are looking for an extended line of credit.

CIBIL operates in four divisions - fraud prevention, consumer, retail and mortgage check. The MFIs will be a new division. The current database stands at 305 million in the consumer division while 15 million in the retail division with 960 members. Post MFIs inclusion, the database will increase by 70 million.

Information about CIBIL Microfinance Report

TransUnion CIBIL provides a universal and exhaustive report with respect to the microfinance industry. The CIBIL Microfinance Report provides a comprehensive view of individuals which enable banks and microfinance institutions to make better credit-lending decisions. This report provides a database of potential borrowers including those in the unbanked and rural sector. In addition to this, TransUnion CIBIL also provides a CIBIL MSME Rank, which provides a detailed list of small and medium enterprises based on their financial history.

Importance of CIBIL Microfinance Report

  • This report provides comprehensive information on the financial history of potential borrowers.

  • MFIs get access to the credit ranking of potential borrowers.

  • The report facilitates better management of credit risk.
  • The database simplifies and fastens the entire process of lending from the approval to the dispersal stage.
  • The credit information helps evaluate the creditworthiness of the potential borrower.
  • It is updated on a regular basis.
  • It helps an MFI implement risk strategies and business tailored to the riskiness of the borrowers.
  • Facilitates risk transition of a borrower.
  • MFIs can pre-screen their borrowers and offer pre-approved loans. Along with this, TransUnion CIBIL also provides TransUnion Score, Portfolio Review, Bureau Analyzer, Market Insights and Company Credit Information Reports.

Credit Bureaus in India

Now that we have covered CIBIL, we can also look at other credit bureaus in India which cater to the microfinance segment across India. The three bureaus are Equifax India, High Mark Credit Information Services Pvt. Ltd and Experian.

Equifax Microfinance Credit Bureau

Equifax decided to launch a nation-wide micro insurance bureau back in 2011 in order to cater to the Microfinance Institutions in India. This is a separate division within Equifax itself which works with the Microfinance Institutions Network (MFIN). The purpose of this division is to assist in curbing delinquency rates within the microfinance industry. Equifax’s Microfinance Institution Bureau Framework is a highly adaptable and customizable technology platform. This framework provides access to data collected by member microfinance institutions. The MFIs report to the bureau with the information gathered on a periodic basis. With over 1300 plus member institutions, Equifax provides Microfinance Credit Information report, Microfinance Portfolio Review as well as a microfinance score The Equifax Microfinance Credit Information Report provides identification and contact details of the borrower, credit summary, credit utilization, past or present credit accounts, repayment history and number of inquiries.

Microfinance Portfolio Review

This report provides business insights of MFIs which assist in making business specific decisions for an enterprise within the microfinance sector. It is further segregated into the following. Competition - A comparison and ranking list of various MFIs. Early Warning Indicators - It identifies any negative trends which enable MFIs to cut any losses. Entry Strategy - Identifies any lucrative untapped market for MFIs

Equifax Microfinance Risk Score

This score is similar to the Equifax Risk Score which helps determine the likelihood of a loan default within 6 months of taking a loan. It helps in making faster and better informed lending decisions as it reduces exposure to risk. Equifax has an extensive member base from where it collects accurate information about a potential borrower.

CRIF Highmark Microfinance

Established in March 2011, this company has one of the largest microfinance database with over 80 million potential borrowers. The microfinance report are created using CRIF Highmark’s advanced Identity Resolution engine.

FAQs On CIBIL Microfinance Report

How are microfinance institutions related to credit bureau?

In order to prevent faulty and non-performing loans in the microfinance industry, the RBI has directed credit bureaus of India to establish a separate credit rating database specific to the microfinance industry. Microfinance Institutions are assisted by credit bureaus in determining and evaluating the creditworthiness of potential borrowers.

What is the difference between a CIBIL Score and CIBIL Microfinance Rank?

A CIBIL score is a credit rating given to an individual, while a CIBIL Microfinance Rank is a rank given to a potential borrower from the microfinance industry in order to determine their payback capacity.

How many credit bureaus provide a microfinance report in India?

There are four credit bureaus in India which provide microfinance report. They are TransUnion CIBIL, Equifax India, High Mark Credit Information Services Pvt. Ltd and Experian.