MicroFinance Institutions Network’s Code of Conduct
Preamble
This Code (CoC) aims at promoting and advancing ‘responsible lending’ practices in the microfinance. Ensuring that customer’s interests are prioritized and protected, and micro-credit improves the customer’s well-being, is at the heart of ‘responsible lending’. In the context of micro-credit customers, much of the academic work, business practices and regulatory directions, globally and in India, broadly converge to the core principles of fair treatment, suitability, transparency, privacy and grievance redressal.
Building on this knowledge, industry’s own experience of CoC over the years and the evolving landscape of micro-credit in the country, this CoC continues to focus on ‘responsible lending’ practices towards the customers. Given that customers of micro-credit may not always fully understand the product and its impact, it is imperative that NIRBHAR MICRO FOUNDATION takes greater responsibility to ensure that customers’ interests are protected.
Responsible lending behaviour and practices are greatly influenced by NIRBHAR MICRO FOUNDATION’s policy with respect to employees and corporate governance. Therefore, each employee engagement and corporate governance are two key pillars to achieve customer welfare and CoC includes them in its ambit.
Notes
a. Applicability
1. This CoC applies to NIRBHAR MICRO FOUNDATION where
Micro-credit is defined, understood and applied as per RBI definition of ‘qualifying assets’ for the NBFC-MFIs. It is clarified that all loan accounts as per the ‘qualifying assets’ criterion, i.e., first cycle and subsequent cycle loans, top-up loans and loans provided for purchase of thirdparty products, are covered by CoC
NIRBHAR MICRO FOUNDATION is defined as a legal entity, which provides micro-credit in line with RBI norms under ‘qualifying assets’ criterion for NBFC-MFIs.
2. For NIRBHAR MICRO FOUNDATION who is a member of the Self-Regulatory Organisation (SRO2 ), CoC is obligatory to follow and necessary condition for the membership. SROs would enforce adherence to the CoC by members.
3. As micro-credit is the key product offered by NIRBHAR MICRO FOUNDATION to low-income market segments, focus of CoC is ‘responsible lending’ practices. However, the underlying principles of customer protection (fair treatment, suitability, transparency, privacy and grievance redressal) can very well be applied to other financial products offered by NIRBHAR MICRO FOUNDATION
4. NIRBHAR MICRO FOUNDATION is required to adhere to all legal and regulatory requirements as required by the RBI, SEBI, IRDA, Central & Sate Government Acts etc. It may be noted that CoC is in addition to these compliances and does not substitute them. In the event of the future regulatory changes, if provisions of CoC and regulation are not in conformity, the regulations will prevail.
b. Changes to previous edition and alignment with CRL
1. This CoC is a revision of the previous edition of CoC and therefore most of the elements which are central to customer welfare are kept intact. These are, however, re-drafted and re-structured for better clarity. Some of the clauses which were ‘not in conformity’ with the existing regulations or
1 https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9827
2 SRO is defined as Industry Association which is recognised by the RBI as SRO for the NBFC-MFIs as per RBI in accordance with RBI press-release https://rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=30052
fund to be repetitive or not contributing to responsible lending practices, have been removed. Given the importance of employee engagement and corporate governance, these two parts are more elaborately drafted and have many new additions.
2. This CoC is a revision of the previous edition of CoC and therefore most of the elements which are central to customer welfare are kept intact. These are, however, re-drafted and re-structured for better clarity. Some of the clauses which were ‘not in conformity’ with the existing regulations or found to be repetitive or not contributing to responsible lending practices, have been removed. Given the importance of employee engagement and corporate governance, these two parts are more elaborately drafted and have many new additions.
3. It may be noted that the section I on Customer Engagement is largely aligned with the Code for Responsible Lending (CRL) and any additions to CRL are high-lighted in blue and italics. CRL aims to bring NIRBHAR MICRO FOUNDATION to voluntarily agree on the most-critical aspects of customer engagement.
Customer Engagement
a. Fair Interaction
1. NIRBHAR MICRO FOUNDATION must ensure that customer is not unfairly discriminated against on grounds such asreligion, caste, marital status or sexual orientation etc.
2. NIRBHAR MICRO FOUNDATION must ensure that all employees and persons acting on its behalf
· Use respectful language, maintain decorum and are respectful of social and cultural sensitives.
· Do not use coercion of any sort to make recovery of loans and take recovery only at a central
· designated place. An employee can take recovery at the place of residence or work of the customer only if customer fails to appear at the central designated place on two or more successive occasions
· Do not intimidate or humiliate verbally or physically
· Do not contact customers at odd hours or at inappropriate times such as bereavements, illness,
· social occasions such as marriages and births
b. Suitability (avoiding multiple over-lending)
1. NIRBHAR MICRO FOUNDATIONmust assess customer’s financial situation (income and expenses), credit requirement, repayment capacity and indebtedness based on information from the customer, Credit Information Report (CIR) and field level intelligence before disbursing a loan
2. NIRBHAR MICRO FOUNDATIONmust use a valid3 CIR before sanctioning a loan. It is clarified that CIR must be used before disbursing all loans including top-up loans, second and subsequent cycle loans
3. NIRBHAR MICRO FOUNDATION must disburse the loan commensurate with the customer’s ability to repay. Prior to sanctioning of loans, NIRBHAR MICRO FOUNDATION, based on micro-credit loans captured in the microfinance section of the valid CIR, must ensure that:
It does not become the fourth lender to a customer if a customer has active loans from three (3) Different Providers. NIRBHAR MICRO FOUNDATION is additionally required to ensure that not more than 2 NBFC-MFIs lend to a customer4 .
It does not breech the total indebtedness of Rs. 1,00,00 per customer.
It is reiterated that NIRBHAR MICRO FOUNDATIONmust verify the total indebtedness of customer factoring all unsecured micro-credit loans
CIR is considered as ‘valid’ for 15 calendar days from the date of extraction of the CIR. This implies that NIRBHAR MICRO FOUNDATIONneeds to disburse a loan to the customer within 15 calendar days from date of extracting her CIR. 4As per the RBI Directions for the NBFC-MFIs.
(individual as well group) captured in the microfinance section of the CIR prior to sanctioning of the loan5 .
It does not sanction/disburse a loan to customer who has non-performing (delinquency > dpd 90 days6 ) accounts with loan amount outstanding > Rs. 1,000 with another Provider7 .
c. Education & Transparency
1. NIRBHAR MICRO FOUNDATIONmust provide key information to the customer and include them in the loan documents such as loan application, loan sanction letter/loan agreement and loan card. This must include:
Identity and address of NIRBHAR MICRO FOUNDATION
· Identity and address of the Customer
· Product details (loan amount, tenure, repayment frequency, annualised interest rate on reducing balance method8 , processing fee, any other charges orfees howsoever described, total payable, total charges recovered towards premium of credit-linked life insurance cover, coverage amount and risks covered, if applicable and other key terms & conditions.
Details of customer grievance redressal system
2. NIRBHAR MICRO FOUNDATIONmust communicate all the terms & conditions to customersin the official regional language or language understood by them. NIRBHAR MICRO FOUNDATIONmust promptly communicate to the customers, any changes in terms & conditions.
3. NIRBHAR MICRO FOUNDATIONmust provide a receipt/written acknowledgement for every payment received from the customer.
4. NIRBHAR MICRO FOUNDATIONmust take measures (such as training, assessment and periodic interactions with customers) to ensure that the customer fully understands the products, process and terms of the contract.
5. NIRBHAR MICRO FOUNDATIONmust give emphasis in educating customers on the importance of timely repayment for good credit history with the CICs, benefit, risks and necessary safeguards of digital financial transactions and grievance redressal mechanism including internal and external escalation mechanism9
6. NIRBHAR MICRO FOUNDATIONmust educate customers against blind trust on group and centre leader and how any default in the fictitious loan (also referred to as ghost lending/pipelining taken by group/centre leader in customer’s name) can ruin her credit records and access to credit in future. This should be part of the Compulsory Group Training (CGT)/Group Recognition Test (GRT) process. NIRBHAR MICRO FOUNDATION must ensure customer attendance in the group meetings
7. NIRBHAR MICRO FOUNDATIONmust disclose the reason to the customer if her loan is rejected. For this purpose, acknowledgement of loan application given to the customer should carry NIRBHAR MICRO FOUNDATION’s CGRM number and Turn Around Time (TAT), so that the customer can reach out to NIRBHAR MICRO FOUNDATION
Loan, if any availed towards meeting education and medical expenses shall be excluded while arriving at the total indebtedness of a customer.
If applicant contests in her delinquent account status in CIR or share that her delinquent account is attributed to withdrawn /closure of operations of micro-credit provider in her area, NIRBHAR MICRO FOUNDATION must support her to resolve the issues by contacting with CICs, relevant Providers or the SROs, as required.
Exception to this available to loans affected by natural calamities which are qualified under RBI Guidelines for Relief Measures in areas affected by natural Calamities for Banks & NBFCs https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11394&Mode=0,
NIRBHAR MICRO FOUNDATIONis required to follow the RBI Directions with respect to pricing including interest rate and processing fee
External escalation mechanism must include regulatory channels available to customer to escalate including Ombudsman where applicable.
d. Information & Privacy
1. NIRBHAR MICRO FOUNDATIONmust obtain copies of KYC documents from customers as per RBI norms.
2. NIRBHAR MICRO FOUNDATIONmust upload accurate and comprehensive customer data with all RBI approved CICs as per the Uniform Credit Data format on a weekly basis.
3. NIRBHAR MICRO FOUNDATIONmust promptly address any dispute raised by the customer about her data with CICs.
This must be done within calendar days from receipt of such dispute.
4. NIRBHAR MICRO FOUNDATIONmust keep personal customer information strictly confidential. Customer information may be disclosed to a third party subject to any of the following conditions:
Such information is required to be provided under the law or it is provided for a mandated business purpose (for example, to credit information companies)
Customer has been informed about such disclosure and prior permission has been obtained in writing. The party in question has been authorized by the customer with intimation to the NIRBHAR MICRO FOUNDATION to obtain customer information.
5. NIRBHAR MICRO FOUNDATIONmust take customer’s consent for loan application. Checking her CIR and her accepting terms and conditions of loan. For every product availed by the customer, credit as well as insurance or any other product. Separate and explicit customer consent should be taken.
e. Grievance Redressal
1. NIRBHAR MICRO FOUNDATIONmust provide a robust customer grievance redressal system to address customer complaints in an effective and timely manner. NIRBHAR MICRO FOUNDATIONmust provide easy access to CGRM to all customers through a dedicated phone number or a staff assisted procedure at the branch to register grievances.
2. NIRBHAR MICRO FOUNDATIONmust clearly communicate the details of customer grievance redressal in branches, loan documents and other communication materials. Please refer to Annexure “Disclosure to Customers”.
3. NIRBHAR MICRO FOUNDATIONmust have least one Grievance Redressal Officer to over-see the CGRM and make his/her contact details (e-mail, Phone Number) accessible to customer.
4. NIRBHAR MICRO FOUNDATIONmust assure the customer that she will be treated fairly despite the grievance being lodged.
f. Others
1. NIRBHAR MICRO FOUNDATIONmust charge the customers in line with relevant RBI Directions.
2. NIRBHAR MICRO FOUNDATION, offering any third- party sell (non-micro-credit product) to customer. Must clearly disclosed all necessary details of such product (Pricing, benefits, warranties, exclusions). NIRBHAR MICRO FOUNDATIONmust ensure that the customer is not forced to buy any such product as a pre-condition to access micro-credit or vice versa.
3. Provider, offering credit- linked life insurance to customer, must clearly disclosed all necessary details including but not limited to as under.
Name of insurer
· Policy Number
· Individuals covered
· Premium paid
· Coverage amount
· Period/term of coverage
· Events covered
· Exceptions: terms related to pre-closure, loan rescheduling and loan default etc.
· Process to file claims (Documents required, TATs etc)
· Grievance process for insurance
· Other Key Conditions
4. NIRBHAR MICRO FOUNDATION who have underlaying digital (i.e. paper-less) process for sourcing (loan application) customer consent, due diligence, concepts, disclosures, payments receipts, Grievance redressal etc. must ensure that process are aligned with relevant regulatory norms and customer is made fully aware, educated and comfortable with digital modes
5. NIRBHAR MICRO FOUNDATION, if withdrawing operations from an area, must make alternate arrangement to service the existing loans of the customers. As an example, arrangement with an existing Provider in such can be worked out to receive loan repayments from customers.
6. NIRBHAR MICRO FOUNDATION must establish direct contact with the customers, avoiding influential unscrupulous intermediaries amongst group or center leaders. NIRBHAR MICRO FOUNDATION must regularly rotate their group/center leaders to restrain the disproportional influence of leaders in the group.
Employee Engagement
a. Recruitment
1. NIRBHAR MICRO FOUNDATION must not unfairly discriminate against a candidate for recruitment based on gender, religion, caste, marital status and sexual orientation etc.
2. NIRBHAR MICRO FOUNDATION must select candidates based on merit, ethics and integrity
3. NIRBHAR MICRO FOUNDATION must recruit a candidate from other provider based on satisfactory relieving letter or reference check only. NIRBHAR MICRO FOUNDATION must seek reference check from candidate’s current employer only after an offer letter is issued to the candidate. However, if request for reference check is not responded to within 15 calendar days (from date of sending the request). NIRBHAR MICRO FOUNDATION may go ahead with the requirement
4. NIRBHAR MICRO FOUNDATION must respond to request from other Provider for reference check within 15 calendar days from receipt of such communication.
5. NIRBHAR MICRO FOUNDATION is encouraged to participate in Employee Bureau to submit their employees’ data and check candidate’s employment records.
6. NIRBHAR MICRO FOUNDATION, recruiting from other Provider, must honour the notice period as mutually agreed between prospective employee and her/ his current employer.
7. NIRBHAR MICRO FOUNDATION, recruiting an employee up to the position of Regional Business Manager from other Provider, should preferably position such employee at least 50 km away from location of her / his last posting (i.e. location of branch where employee was last posted) for a year. The fundamental spirit behind this clause is to ensure that an employee does not encroach upon business of Provider (where she / he was last employed) by virtue of her/him being privy to business information of the area and familiarity with the customers from last employment.
b. Orientation (training and appraisal)
1. NIRBHAR MICRO FOUNDATION must give comprehensive induction training to the employees on policies, processes, regulations, as well as CoC. Emphasis should be given on customer – interface aspects such as fair treatment, credit assessment, privacy of data, service quality, CGRM, relationship management and dealing with customer facing difficulty in repayment etc.
2. NIRBHAR MICRO FOUNDATION must regularly assess employees understanding of the above elements and conduct refresher training to address the gaps in understanding.
3. NIRBHAR MICRO FOUNDATION must train their employees on understanding and dealing with gender issues including appropriate interaction with women colleagues and customers.
4. NIRBHAR MICRO FOUNDATION must necessarily orient their employees on professional conduct and integrity issues including expected behaviour and not indulging in any unlawful and antisocial activities.
5. NIRBHAR MICRO FOUNDATION must engage new employees in the branch level business operations only after completion of induction training.
6. NIRBHAR MICRO FOUNDATION must ensure that employees directly responsible for CGRM receive detailed training about the system, processes and soft skills for resolving the complaints.
7. NIRBHAR MICRO FOUNDATION must institute a transparent incentive and appraisal structure in a such a way that it does not lead to perverse sales behaviour, factors for the service quality, incentives responsible lending, rewards compliance with CoC and penalize breach of the CoC. NIRBHAR MICRO FOUNDATION must set targets for the branch – level employees based on a reasonable -objective criteria including understanding of micro -credit requirement and repayment capacity in an area.
c. Well – being
1. NIRBHAR MICRO FOUNDATION must ensure that well – being (for example, adequate remuneration, working hours, working conditions, leaves for personal reasons such as family commitments and emergencies) and security of employees is given due importance.
2. NIRBHAR MICRO FOUNDATION must have well- defined protocol to be followed by employee to handle risk arising from going to difficult area and cash handling. NIRBHAR MICRO FOUNDATION must indemnify the employees for cases where protocol has been followed but mishap still occurred.
3 NIRBHAR MICRO FOUNDATION must not collect shortfalls in collections from employees unless in proven cases of frauds by employees.
4. NIRBHAR MICRO FOUNDATION must create conducive professional environment for both genders to work and grow.
5 NIRBHAR MICRO FOUNDATION must have an appropriate mechanism to hear and readdress the grievances of the employees and provide counselling.
6. NIRBHAR MICRO FOUNDATION, for routine cases (routine cases is where employee has orderly served the notice period, finished the tasks, completed handover, has no pending financials and disciplinary clearances required), must complete the relieving formalities (including final settlement of pending dues , issuing no-objection certificate and relieving letter) of the employees within 30 calendar days from receipt of such communication.
7. NIRBHAR MICRO FOUNDATION must respond to request form prospective employer for reference check within 15 calendar days from receipt of such communication.
8. NIRBHAR MICRO FOUNDATION must ensure that notice period is not more than 3 months for employees.
Corporate Governance
a. Policies, Strategic Directions and Oversight
1. NIRBHAR MICRO FOUNDATION must align relevant policies such as Fair Practices Code (FPC), Product development, Operational, Human Resource, CGRM, Internal Audit, Information & Technology etc to clauses stipulated in the CoC NIRBHAR MICRO FOUNDATION must align processes with updated policies specifically.
a. NIRBHAR MICRO FOUNDATION must have clearly defined guidelines for employee interaction with customers. This must include policy to deal with aberrations from the guidelines.
b. NIRBHAR MICRO FOUNDATION must have a Board approved CGRM policy covering process to register resolve and escalate the complaints, internal and external mechanism( external escalation mechanism must include regulatory channels available to the customer to escalate
including Ombudsman where applicable), complaints categories and TAT, review / audit of CGRM and reporting to Board and top management
c NIRBHAR MICRO FOUNDATION must have a section in credit policy to deal with delinquencies at the customer level including rescheduling of loans for the customer who is facing difficulty in repayment of loans on account of loss of business assets, loss of earning members of the family, natural disasters or other emergencies
d. NIRBHAR MICRO FOUNDATION must have a Board approved framework to deal with crisis arising from natural disasters, mass defaults, negative media, local – level hostility etc.
e NIRBHAR MICRO FOUNDATION must have a policy to safeguard customer’s data (Capturing, transmitting, storing) covering the universally accepted principle to data protection under:
Collection limitation
· Purpose specification
· Use limitation
· Data minimisation
· Preservation of data quality
· Breach –notification
· Incorporation of access controls
· Encryption of data wherever feasible
· Incorporation of data protection impact assessments to actively identify and mitigate threats to personal data and undertaken periodically.
2. NIRBHAR MICRO FOUNDATION must get all key policies and plans (encompassing aspects of customer acquisition, expansion, targets, operations, HR, CGRM etc) reviewed and updated annually by the Board.
3. NIRBHAR MICRO FOUNDATION must assess its product offering through multi – dimensional lens including its impact on the well-being of customers (such as increasing income, access to assets, reducing drudgery, improving skills etc).
4. NIRBHAR MICRO FOUNDATION must develop their business plans bases on both supply and demand side factors including current supply of micro-credit and need and repayment capacity of customers in an area. Data available from CICs should be used to understand the supply and repayment behaviour of a geography. Geographies which are saturated, should be avoided or approached with utmost action.
5. NIRBHAR MICRO FOUNDATION must conduct at-least the annual assessment of its performance (adherence and well as lapses) via a vis CoC and discuss the report at Board and top Management level. The reports must disclose the methodology used for evaluating the performance. NIRBHAR MICRO FOUNDATION with Gross Loan Portfolio (GLP) > Rs 500 Cr, must undertake such assessment through an external agency. A copy of assessment report on CoC must be shared with the SROs.
6 NIRBHAR MICRO FOUNDATION must record and analyse individual and aggregate level data for CGRM capturing nature of complaints, action taken and turn -around time. Report on grievances received, resolved and pending along with nature of complaints should be shared with the Board for review.
b. Risk Management & Internal Audit
1. NIRBHAR MICRO FOUNDATION must have a well – laid out risk management framework to identify key risks (such as credit and operational risks due to concentration, excess supply, political, people, natural disasters) and steps to mitigate them.
2. NIRBHAR MICRO FOUNDATION must audit the branches, customer, employees, process and system to check adherence to the elements described in CoC
3. NIRBHAR MICRO FOUNDATION must internally probe persistence abnormally high performance with respect to assigned targets of branches and employees, as this may be an indicator of coercive sales practices.
4. NIRBHAR MICRO FOUNDATION must undertake quarterly audits on a reasonable sample to capture instances of lending breaching the norms on total indebtedness, lender count and lending to customer having a delinquent account with another Provider. For this purpose, NIRBHAR MICRO FOUNDATION may use data available from CICs to capture adherence with the norms of total indebtedness and NIRBHAR MICRO FOUNDATION count per customer.
5. NIRBHAR MICRO FOUNDATION must develop specific internal controls to identify and avoid informal unscrupulous intermediaries in the lending process and system. For example, direct connect with customers, pre-disbursement confirmation calls to customers, loan utilization checks, regular rotation of group /centre leaders and customer verification during internal audit.
c. Industry Cooperation
1. NIRBHAR MICRO FOUNDATION must share data and information required by the SROs to understand industry level practices, research etc. For this purpose, NIRBHAR MICRO FOUNDATION must identify a focal person to coordinate with the SROs.
2. NIRBHAR MICRO FOUNDATION must cooperate among themselves to deal with industry-level issues.