RBI asks MFIs to use local language for agreement

G. Naga Sridhar Updated - November 16, 2017 at 12:35 PM.

No penalty should be levied on delayed payments

The Reserve Bank of India wants micro-finance institutions to have their loan agreements cleared by their boards, preferably in the local language.

In the revised guidelines on fair practices for the recently-created non-banking finance company-MFI category, it has also asked them to use a standard form of loan agreement to achieve greater transparency.

The high interest rates of up to 60 per cent charged by MFIs and the row over the alleged harassment of clients by recovery agents resulted in the enactment of Andhra Pradesh Microfinance (Regulation of Moneylending) Act 2010.

To ensure transparency, the RBI, in the guidelines issued last week, said the pricing of loans should only involve interest rates, processing charge, insurance premium and related administrative charges.

This, along with a no-penalty clause on delayed payments, non-collection of security deposit and margins, should be mentioned in the loan agreement.

LOAN CARDS

Loan cards should be given to all borrowers. The card should mention the effective rate of interest, other terms and conditions and name and contact details of the person who deals with complaint redressal.

Micro-finance institutions will be accountable for preventing inappropriate staff behaviour, the apex bank said, while asking micro-lenders to display a declaration to this effect in their offices/branches.

Other conditions are that field-staff should be trained to make necessary enquiries with regard to existing debt of the borrowers, all sanctioning and disbursement of loans should be done only at a central location and that more than one individual should be involved in the process.

A fair practices code drawn up on the basis of these guidelines should be approved by the boards of non-banking financial companies-MFIs within a month.

Mr S. Dilli Raj, Chief Financial Officer, SKS Microfinance Ltd told Business Line that the guidelines would help streamline operations in the sector.

“It will benefit clients as well as genuine players,” he added.

>nagsridhu@thehindu.co.in

Published on April 1, 2012 16:40