Microfinance institutions (MFIs) in the country grouped under Sa-Dhan and MFIN have, for the first time, united for the cause of a common code of conduct.
Prepared under the joint auspices of Sa-Dhan, the Association of Community Development Finance Institutions, and Microfinance Institutions Network (MFIN), the code was released in New Delhi on Tuesday.
MFIN is a grouping of mainly NBFC-MFIs while the membership of Sa-Dhan is more secular in nature and open to not just any not-for-profit MFIs but NGOs as well.
Speaking at a small ceremony arranged on the sidelines of the Annual Microfinance Summit-2011 here, Mr Vijay Mahajan, Founder and Chairman, Basix Group, and Ms Elaben Bhatt, Chairperson, Sewa Cooperative Bank, said that this was a red-letter day in the history of MFIs.
The new code of conduct would enable them to put up a joint front in regard to lobbying with the Centre for many of their causes, Mr Mahajan said.
A delegation of the industry proposed to call on the Finance Ministry and formally communicate to it of the thrashing out of a common code of conduct for the sector.
The Malegam Committee recommendations of December 2, 2011, had stipulated that MFIs must have a common code of conduct in accordance with the Client Protection Code stipulated by the Reserve Bank of India.
The new code, among other things, insists that MFIs seek to avoid over-indebtedness of clients.
DUE DILIGENCE
They must conduct due diligence as per their internal credit policy to assess the need and repayment capacity of clients before making a loan.
Such loans need to be made commensurate with the client’s ability to repay. If a client has loans from two separate lenders, then, irrespective of the source of the loans, a MFI shall not be the third lender to that client.
MFIs shall not, under any circumstance, breach the total debt limit for any client, as prescribed by the Reserve Bank or Central/State Government(s).
Copies of relevant documents, as per standard KYC norms, must be obtained. Additional documents sought must be reasonable and necessary for completing the transaction.
NO BUNDLING
Products should not be bundled. Only exceptions are life insurance and livestock insurance products which are typically offered bundled with loans.
MFIs must keep personal client information strictly confidential except in cases listed in the code.
All terms and conditions must be disclosed for all services offered. The disclosure must be made prior to disbursement through individual sanction letter, loan card, loan schedule, passbook of through group/centre meetings.
All terms and conditions for all products/offerings must be offered to clients in the official regional language or a language understood by them.
MINIMUM DISCLOSURE
At the minimum, the MFI must disclose the following terms; rate of interest on a reducing balancing method; processing fee; any other charges or fee howsoever described; and total charges recovered for insurance coverage and risks covered.
The code also prescribes ‘appropriate interaction’ and ‘collection practices’ that abjures violence or threats of any form. Client visits must not be made during odd hours or on occasions such as bereavement and sickness.
CLIENT INFORMATION
Personal client information must be kept strictly confidential and could be parted with only subject to conditions.
The code also addressed the issues of governance, recruitment, client education, data sharing , feedback/grievance redressal mechanism, and prescribed client protection guidelines and institutional conduct guidelines.