Stricter adherence to Sa-Dhan guidelines leads to better discipline in microfinance sector

• The microfinance portfolio of lenders in Sa-Dhan has recently dropped significantly from ₹4.43 lakh crore in March 2024 to ₹4.04 lakh crore in October 2024.
• The reason of drop is due to a reduction in incremental disbursements and unwinding of borrower leverage.
• Sa-Dhan issued ‘Seven Sankalps‘ in July 2024, providing additional guidelines to its member institutions.
• The Sankalps also prescribe not lending to NPA (non-performing accounts) with an amount greater than ₹3,000, proper checks on loan utilisation, a mandatory employee bureau check for staff hiring, and insistence on obtaining and providing relieving letters.

Sa-Dhan: Self-Regulatory Organization for Microfinance Institutions

• is appointed by the Reserve Bank of India (RBI).
• Primarily aims to promote inclusive impact finance institutions and support low-income households, especially women.
• Created the Code for Responsible Lending (CRL) to improve lending quality and transparency.
• Developed the Credit Assessment Framework for clients (CAF) in 2022.
• Issued the first Governance Manual for the MFI Board of Directors in 2018.
• Contributes to social development goals.
• Addresses gender issues, focusing on women empowerment.
• Supports global and national interest issues like climate change.
• Has about 220 members working in over 600 districts across 33 states and union territories.

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