MFIs exercise caution on lending to MLMs

Microfinance institutions (MFIs) in the country have reportedly started scrutinising the investment of their large borrowers following the Saradha chit-fund scam.

While so far MFIs were verifying the client profile mostly through word-of-mouth from group members, now they are seeking data on investments from borrowers who invested in multi-level-marketing (MLM) companies. Some industry sources said MFIs deny loan to firms that invest heavily on MLM companies.

Further, it is learnt that MFIs no longer give credit to the agents of MLM companies, while existing depositors are now required to declare their investments before taking loans from MFIs.

But some MFIs like Ujiivan microfinace already exercised caution on lending to MLM companies before the break-out of Saradha scam.

In another development, it came to light that some companies are raising funds from public using fake names of some MFIs. It is learnt that over the last few years, several fake companies have been raising money under microfinance operation.

Recently, Bandhan microfinance identified two companies—Bandhan Agro and Bandhan Cooperative—who have been raising public deposits using the identity of Bandhan microfinance.