Abstract
ABSTRACT Since multiple-borrowing often leads to over-indebtedness, the Reserve Bank of India (RBI) issued new directives to Micro Finance Institutions (MFIs) including restrictions against lending to borrowers having two or more outstanding loans. We argue that such conditions will push productive borrowers to exit the market. We examine whether potential errants can be flagged from available borrower information collected by a Credit Information Company (CIC). We find that borrowers with higher counts of active loans are more likely to furnish different ID cards for taking loans and also take multiple loans on the same ID card. We, therefore, recommend the gradual softening of RBI’s curbs and suggest incentivizing MFIs to train errant borrowers to better manage their finances before loan disbursal.
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