MFI plans for Aadhaar as primary identity may face legal hurdles

Aadhaar will make known exact indebtedness level of individual, says industry even as SC asks govt not to share data with any authority.

Microfinanciers’ plans to check Aadhaar numbers to ensure potential borrowers aren’t already loaded with loans may come undone after a recent interim ruling by the Supreme Court restricted the use of Aadhaar data to ration shops and cooking gas.

While referring a bunch of petitions on the validity of Aadhaar to a five-judge Constitution bench on 11 August, the apex court asked the government not to share Aadhaar data with any authority.

However, the industry’s two self-regulatory organizations—Microfinance Institutions Network (MFIN) and Sa-Dhan—believe Aadhaar should be the primary identity for borrowers.

“We have met with microfinance institutions (MFIs) and asked them to create a separate field to feed in Aadhaar number for all borrowers,” said Ratna Viswanathan, chief executive officer, MFIN. Starting October, MFIN plans to have every borrower’s Aadhaar captured in the system by April 2016.

“We had a meeting with UIDAI (Unique Identification Authority of India) and we are also asking MFIs to encourage people who do not have Aadhaar to enrol,” said Viswanathan, adding that no one, however, will be denied a loan if they do not have the number.

Sa-Dhan is working with MFIs and UIDAI to organize camps to enrol borrowers for Aadhar, executive director P. Satish said.

Even though MFIs may be able to secure borrowers’ Aadhaar numbers as planned, their ability to verify data with UIDAI will, however, depend on the outcome of the litigation.

Some of the petitions in the Supreme Court relate to Aadhaar numbers being made mandatory to avail of government benefits and services. Others deal with the number itself being a violation of an individual’s privacy, and some deal with the possible misuse of the information.

According to MFI rules, a person can take a maximum of two MFI loans at a time and the aggregate should not exceed Rs.1 lakh. Reported cases of individuals using different identities to take out multiple loans have prompted the industry to make Aadhaar the primary identity for borrowers. According to Viswanathan, using Aadhaar will ensure that the exact debt level of an individual is gauged.

“If Aadhaar is entered into the system, tracking all loans that a person has availed of will become easier,” said Kalpana Pandey, chief executive and managing director, CRIF High Mark Credit Information Services Pvt. Ltd, a credit reporting bureau, which provides credit reports of microfinance borrowers.

Equifax Credit Information Services Pvt. Ltd is another agency which compiles such reports. Experian Credit Information Co. of India Pvt. Ltd and Credit Information Bureau (India) Ltd also plan to launch credit reports suitable for MFIs.

Viswanathan said MFIs deal with a very vulnerable low-income group, and the move will be in their favour as it will prevent over-indebtedness.

However, Kamayani Bali Mahabal, a Mumbai-based lawyer, human rights activist and a petitioner in the UIDAI case in the Supreme Court, said the apex court has effectively, though temporarily, put an end to this harassment, ruling that Aadhaar cannot be made mandatory till the larger constitutional bench decides on the matter.

The MFI industry believes that using Aadhaar will not go against the Supreme Court order as the court is looking at the issue from the angle of government benefit transfers; but from a lending perspective, it is a business decision.

Moreover, it will not be using biometric or personal details, but will simply tag the Aadhaar number with borrowers in the credit report.