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MFI body plans code of conduct
KOLKATA: The country’s leading micro-finance players have pledged to improve the ways they deal with poor borrowers and have promised to review lending rates after March 2010. For starters, Sa-Dhan, the national association of micro finance institutions (MFIs), is now planning to put in place a more stringent code of conduct for members to improve their rules of business.

While Sa-Dhan has been working on the fresh code for quite some time, it’s apparent it has started expediting matters following its recent talks with Reserve Bank of India (RBI), where the banking regulator has shown concern over MFIs’ operational irregularities and governance issues.

Accordingly, MFIs have now agreed to restrain themselves from unethical competition and restrict their exposure to existing borrowers of other lenders. The code, which is on the anvil shortly, also dwells on the issues like high-handed recovery tactics, lending limits, overlapping of loans, cash flow examination of borrowers and non-poaching agreement between members.

The fresh code is expected to be ready by March. In fact, the Microfinance Institution Network (MIN), the new and exclusive association for NBFC-MFIs (MFIs registered as NBFCs) is carrying out a similar exercise simultaneously. Sa-Dhan’s members can also be non-NBFC micro lenders.

“Under Sa-Dhan’s umbrella, MFIs will meet in the first week of March and all members may sign the code of conduct. Sa-Dhan is also putting in place a control committee so that all the rules are administered properly,” SKS Microfinance vice president (operation) KV Rao told ET.

“We have been working on the new code for quite some time now. This will be an important step to improve the credibility of the growing MFI sector. We are in a business, which needs to be carried out ethically to create maximum value for our poor customers,” said Bandhan managing director Chandra Shekhar Ghosh, who is in the board of both Sa-Dhan and MIN.

Besides, in the light of RBI’s moral suasion for lowering interest rates, MFIs have decided to review their cost of funds and cost of operation to examine the possibilities of reducing lending rates. “We will review it after March this year,” Mr Ghosh said.

According to Village Financial services Pvt Ltd managing director Kuldip Maity, lending rates have already reduced to around 12.5% per annum from 15-17% four-five years back and MFIs are reviewing the possibility of lowering lending rates once again.

Besides, the associations have urged their members to be soft in their ways to recovering loans, especially at a time when the borrowers are in a dire situations. “The members are also conscious of the fact that reviewing of cash flow of the borrowers and their repaying capacity is something where no laxity should be tolerated. Otherwise, the borrowers fall into debt trap,” Sahara Uttarayan chief executive officer Kartick Biswas said.

“These are some of the steps to improve the credibility of the growing MFI sector. We are in a business, which needs to be carried out ethically to create maximum value for our poor customers,” observed Mr Ghosh.
Source :
The Economic Times
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