Historically MFIN was conceived and structured as a Self Regulatory Organisation (SRO) for the microfinance industry and was instituted as a Society under the Registrar of Societies (AP Societies Registration Act 2001). The primary objective of setting up MFIN was to establish industry standards for responsible lending and client protection. It promotes robust systems and processes within the NBFC-MFI sector to contribute substantially to the financial inclusion agenda of the government.
MFIN is dedicated to client protection and transparency through effective and efficient regulation of the NBFC- MFI industry. Self regulation is instituted through:
- Compliance with a comprehensive Common Code of Conduct
- An Enforcement Committee which exercises oversight to ensure compliance with the Code of Conduct
- An effective two tiered grievance redressal mechanism with each MFI having nodal officers for grievance redressal as well as helpline numbers
- An effective Credit Bureau environment to regulate responsible lending and to guard against over indebtedness
- A comprehensive self – assessment tool, the Responsible Business Index, which is a score card against various compliance parameters and is submitted quarterly by each MFI
Our independent regulation plays a critical role in the microfinance industry—by enforcing high ethical standards, bringing the necessary resources and expertise to regulation and enhancing client safeguards and market integrity.
- In exercising its role as a SRO, MFIN seeks to ensure that proper framework and processes are put in place by members to ensure adherence to the regulations stipulated by the RBI, the Fair Practices Code (FPC) and the Industry Code of Conduct (CoC), voluntarily adopted by the all Microfinance Institutions.Surveillance is carried out through:
- Grievance redressal is an important part of the SRO framework. MFIN, with technical support from Smart Campaign has developed a ‘Three Level Progressive Framework’ consisting of nine broad parameters and 17 indicators. The framework derives extensively from existing practices of MFIs. The framework factors in the differing capacity of MFIs and provides a three tier structure (Level 1, 2 and 3) to be adopted in terms of resources and capacity of members. The aim is to move from Level 1 to 2 and 2 to 3 in an incremental fashion to bring all organizations to a uniform level. To roll out the process and socialize MFIs with the new standard mechanism, three one-day workshops were conducted by MFIN and Smart Campaign with the objective of disseminating the framework.
- GRM Accelerator: MFIN has devised and developed a self-evaluation tool based on the three tier GRM Framework to enable the staff handling GRM to scale up and strengthen the systems and processes for GRM. The “GRM Accelerator”, helps to monitor progress on the framework through a dashboard and gives an overview of organizational performance. The tool has been shared with the members for internal tracking of progress and GRM strengthening.
- MFIN Toll Free Number: A key initiative on GRM has been the setting up of the MFIN Toll Free Number (18002700317) in July 2015. This Toll free number gives direct access to microfinance clients to reach out to the SRO with their grievances. Although the SRO grievance redressal mechanism is an appellate level mechanism, there is no restriction on clients reaching out to MFIN. In the event of clients reaching out, the SRO facilitates communication of client complaints to the concerned MFI and tracks its resolution. In case the case is not resolved to the satisfaction of the client within the stipulated Turn Around Time (TAT), MFIN’s Enforcement Committee steps in to resolve the same.
- The Microfinance Industry has evolved to play an enhanced role in the financial inclusion dialogue over the years. Consequently, the need for a consensus based industry framework, to ensure standardization and compliance in a uniform manner across all microfinance institutions was a natural corollary. The first edition of a unified Industry CoC for the Microfinance Industry was put together in 2011. As the industry has undergone a lot of changes over the last four years, MFIN undertook the task of revising the Code in conjunction with a multi-stakeholder Working Group, consisting of representatives from SIDBI, IFC, M-CRIL and Sa Dhan. The result was a 2nd Edition of the Industry Code of Conduct. The salient features of the 2nd Edition of Code of Conduct include more robust standards on corporate governance, measures to reduce client over indebtedness, mandating use of Aadhaar over a period of two years, strengthening grievance redressal management and enforcement of the CoC through the SRO. All the changes focus on the fundamental aspects of responsible business and enhanced client protection. The revised code also includes a supplementary document “MFIs Commitment to Customers” recommended by the working group which is to be used as a separate one pager pull out, to be given to the customer at the time of loan disbursement.
- An essential component of client protection is client education. MFIN provides clients with tools and resources that can help them make wise financial decisions. To raise awareness on credit bureau and the merits of maintaining a good credit history, MFIN in partnership with IFC initiated the Credit Bureau Awareness Project for Microfinance Institutions in India in 2012. The Project objective was to expand and deepen consumer understanding of the importance of building a strong credit history, as well as the implications of credit information sharing, credit reports and the role of credit bureaus. Further, the Credit Bureau Consumer Awareness Campaign aimed to support MFI’s across India to enhance their institutional capacity to effectively deliver, disseminate and implement consistent quality consumer protection and credit related financial education. A host of campaign collaterals such as posters, picture cards and banners have been designed for the Campaign. As a next step, a pilot with four Member NBFCMFIs namely, Agora Microfinance, Jagaran Microfin, Margdarshak Financial Services and Shikhar Microfinance was initiated this year to test the suitability of these modules. A baseline and impact survey will be carried out to assess the impact of dissemination through this communication material.
- MFIN has an Enforcement Committee (EC) comprisingof five members, of which two are elected from amongst the Authorized Representatives of Member institutions and three members are independent persons of eminence. The Enforcement Committee helps MFIN perform it’s SRO functions. The EC has a defined Standard Operating Procedure (SOP) and Internal Rules of Procedure. It has the wherewithal to impose penalties for non compliance. In the year under review, it has issued show cause notices and levied penalties for non compliance.