New Delhi: India’s oldest and largest microfinance industry body Sa-Dhan has urged the Reserve Bank of India, the Finance Ministry and the UIDAI to allow microfinance institutions to conduct e-KYC authentication for client on-boarding. In a letter written to the authorities, Sa-Dhan has outlined repercussions the industry is facing.
According to P. Satish, Executive Director – Sa-Dhan, “As KYC verification plays an important part in entire on-boarding process of the borrowers, e-KYC had been a boon to the MFIs and clients. e-KYC had helped in reducing the turn-around time of loan processing to a great extent for the MFIs and had helped clients to avail loans in a timely manner. It had also helped in checking duplicate Aadhaar cards being submitted to avail loans, which poses as a critical operational risk for the sector.” He added, “However, as NBFC-MFIs and MFIs were disallowed from using e-KYC, the microfinance sector and its clients have been facing a lot of issues. Due to absence of e-KYC the loan processing time has increased. Offline modes of KYC verification leads to increase in costs for clients and usage of fake Aadhaar card by clients leads to financial losses for MFIs.”
In the letter Sa-Dhan highlighted that lack of e-KYC can give rise to fraudulent activities and availing of multiple loans by fraudsters. Sa-Dhan has requested for invoking Section 11A of Prevention of Money Laundering Act that empowers the union government to permit non-banks to perform authentication under the Aadhaar Act. As per P. Satish, Executive Director – Sa-Dhan, “e-KYC is very critical for the Microfinance sector in dealing with KYC based frauds which could adversely affect clients and MFIs. Though RBI has enabled use of video based KYC facility, in the present context of COVID, it will be difficult for institutions for investing further in new technology and adopting it in scale.”