• RBI mulls credit bureau access for Section-8 MFIs to boost transparency and responsible lending.
• Move aims to curb loan duplication and reduce borrower over-indebtedness in underserved communities.
• Section-8 MFIs could soon join formal credit ecosystem, enhancing trust and credit discipline.

In a major step towards enhancing transparency and financial inclusion, the Reserve Bank of India (RBI) is proposing to permit Section-8 microfinance institutions (MFIs) to access credit bureau information. If put in place, the move will allow these not-for-profit organizations registered under the Companies Act as Section-8 companies to report and access borrower credit histories, equal to other regulated lending organizations.

A  large number of Section-8 MFIs are out of the formal credit information system, reducing their capacity to evaluate borrower risk or monitor several loans borrowed by customers through different institutions. This lack has created challenges in averting borrower over-indebtedness and facilitating sustainable lending.

The RBI proposal is in response to continuing pressure from the microfinance sector, particularly small NGOs and community-based lenders, that the denial of credit bureau access places them at a disadvantage relative to NBFC-MFIs and banks. The RBI hopes to improve credit discipline, reduce duplication of lending, and thereby also safeguard lenders as well as borrowers within the microfinance sector by facilitating access to credit data by these institutions.

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Section-8 MFIs tend to specialize in lending to low-income segments, especially women in rural and semi-urban parts of the country, and they tend to have a strong social development agenda. Providing them with access to credit bureaus would also fit well into the RBI vision of creating a more inclusive and data-based financial infrastructure, particularly for marginalized communities.

Industry associations like Sa-Dhan and MFIN have hailed the initiative, saying it would increase transparency and institutional credibility for smaller players. The RBI is likely to finalize the policy guideline after stakeholder consultations within months.

If cleared, this move will be a game changer in the democratization of access to credit information, lending best practices, and minimizing the risk of financial strain among low-income borrowers