Source: Sa-Dhan, 2007. Core Values and Voluntary Mutual Code of Conduct for Micro Finance Institutions
In January 2007, Sa-Dhan issued a voluntary mutual code of conduct applicable to all the categories of member microfinance institutions.
Objectives
The member institutions agree to promote and strengthen the micro finance movement in the country by bringing the low income clients to the mainstream financial sector. They also agree to build progressive, sustainable and client centric micro finance institutions in the country to provide integrated financial services to the clients. Their aim should be to promote co-operation and co-ordination among micro finance institutions and other agencies to achieve higher operating standards and avoid unethical competition in order to serve the clients better.
Integrity
The member institutions agree to:
i) Act honestly, fairly and reasonably in conducting micro finance activities.
ii) Conduct micro finance activities by means of fair competition, not seeking competitive advantages through illegal or unethical micro finance practices. No officer, employee, agent or other person acting on their behalf shall take unfair advantage of anyone by manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair practice.
iii) Prominently display the core values and code of conduct on the notice board of head office and all branches and put systems in place to ensure compliance.
iv) Ensure that their staff and all persons acting for them or on their behalf, are trained or oriented to put these values into practice.
Transparency
The member institutions agree to:
i) Disclose to clients all the terms and conditions of the financial services offered in the language understood by the client.
ii) Disclose the source of funds, costs of funds and use of surpluses to provide truthful information to clients.
iii) Provide information to clients on the rate of interest levied on the loan, calculation of interest (monthly/ quarterly/half-yearly), terms of repayment and any other information related to interest rates and other charges.
iv) Provide information to clients on the rate of interest offered on the thrift services provided.
v) Provide information to clients related to the premium and other fees being charged on insurance and pension services offered as intermediaries.
vi) Provide periodical statements of the MFI’s accounts to the clients.
Fair Practices
Member institutions are committed to follow fair practices built on dignity, respect, fair treatment, persuasion and courtesy to clients. Member institutions agreed to:
i) Provide micro finance services to low income clients irrespective of gender, race, caste, religion or language.
ii) Ensure that the services are provided using the most efficient methods possible to enable access to financial services by low income households at reasonable cost.
iii) Recognise their responsibility to provide financial services to clients based upon their needs and repayment capacity.
iv) Promise that, in case of loans to individual clients below Rs. 25,000, the clients shall not be asked to hand over original land titles, house pattas, ration cards, etc., as collateral security for loans, except when obtaining copies of these for fulfilling “know your customers” norms of the Reserve Bank. Only in case of loan to individual clients of Rs 25,000 and above can obtain land titles, house pattas, vehicle RC books, as collateral security.
v) Interact with the clients in an acceptable language and dignified manner and spare no efforts in fostering clients’ confidence and long-term relationship.
vi) Maintain decency and decorum during the visit to the clients’ place for collection of dues.
vii) Avoid inappropriate occasions such as bereavement in the family or such other calamitous occasions for making calls/visits to collect dues.
viii) Avoid any demeanour that would suggest any kind of threat or violence.
ix) Emphasise using social collateral which includes various forms of peer assurance such as lending through groups and group guarantees at the village, hamlet or neighbourhood level, or guarantees by relatives, friends, neighbours or business associates; and explain clearly to clients what the obligations of social collateral are.
Governance
i) Observe high standards of governance, ensuring fairness, integrity and transparency by inducting persons with good and sound reputation, as members of board of directors. The MFI should ensure that the majority of the directors are independent directors and/or duly elected representatives of the community served, and that the board would be involved in all policy formulation and other important decisions.
ii) Ensure transparency in the maintenance of books of accounts and reporting/ presentation and disclosure of financial statements by qualified auditor/s.
iii) Put in the best efforts to follow the Audit and Assurance Standards issued by the Institute of Chartered Accountants of India (ICAI).
iv) Place before the board of directors, a compliance report indicating the extent of compliance with this voluntary mutual code of conduct, specifically indicating any deviations and reasons therefore, at the end of every half financial year.
Feedback/ Grievance Mechanisms
i) Establish effective and efficient feedback mechanism.
ii) Take steps to correct any errors and handle complaints speedily and efficiently. Wherever a complainant is not satisfied with the outcome of the investigation into her complaint, she should be notified of her right to refer the matter to the Ethics and Grievance Redressal Committee constituted by Sa-Dhan.
In January 2007, Sa-Dhan issued a voluntary mutual code of conduct applicable to all the categories of member microfinance institutions.
Objectives
The member institutions agree to promote and strengthen the micro finance movement in the country by bringing the low income clients to the mainstream financial sector. They also agree to build progressive, sustainable and client centric micro finance institutions in the country to provide integrated financial services to the clients. Their aim should be to promote co-operation and co-ordination among micro finance institutions and other agencies to achieve higher operating standards and avoid unethical competition in order to serve the clients better.
Integrity
The member institutions agree to:
i) Act honestly, fairly and reasonably in conducting micro finance activities.
ii) Conduct micro finance activities by means of fair competition, not seeking competitive advantages through illegal or unethical micro finance practices. No officer, employee, agent or other person acting on their behalf shall take unfair advantage of anyone by manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair practice.
iii) Prominently display the core values and code of conduct on the notice board of head office and all branches and put systems in place to ensure compliance.
iv) Ensure that their staff and all persons acting for them or on their behalf, are trained or oriented to put these values into practice.
Transparency
The member institutions agree to:
i) Disclose to clients all the terms and conditions of the financial services offered in the language understood by the client.
ii) Disclose the source of funds, costs of funds and use of surpluses to provide truthful information to clients.
iii) Provide information to clients on the rate of interest levied on the loan, calculation of interest (monthly/ quarterly/half-yearly), terms of repayment and any other information related to interest rates and other charges.
iv) Provide information to clients on the rate of interest offered on the thrift services provided.
v) Provide information to clients related to the premium and other fees being charged on insurance and pension services offered as intermediaries.
vi) Provide periodical statements of the MFI’s accounts to the clients.
Fair Practices
Member institutions are committed to follow fair practices built on dignity, respect, fair treatment, persuasion and courtesy to clients. Member institutions agreed to:
i) Provide micro finance services to low income clients irrespective of gender, race, caste, religion or language.
ii) Ensure that the services are provided using the most efficient methods possible to enable access to financial services by low income households at reasonable cost.
iii) Recognise their responsibility to provide financial services to clients based upon their needs and repayment capacity.
iv) Promise that, in case of loans to individual clients below Rs. 25,000, the clients shall not be asked to hand over original land titles, house pattas, ration cards, etc., as collateral security for loans, except when obtaining copies of these for fulfilling “know your customers” norms of the Reserve Bank. Only in case of loan to individual clients of Rs 25,000 and above can obtain land titles, house pattas, vehicle RC books, as collateral security.
v) Interact with the clients in an acceptable language and dignified manner and spare no efforts in fostering clients’ confidence and long-term relationship.
vi) Maintain decency and decorum during the visit to the clients’ place for collection of dues.
vii) Avoid inappropriate occasions such as bereavement in the family or such other calamitous occasions for making calls/visits to collect dues.
viii) Avoid any demeanour that would suggest any kind of threat or violence.
ix) Emphasise using social collateral which includes various forms of peer assurance such as lending through groups and group guarantees at the village, hamlet or neighbourhood level, or guarantees by relatives, friends, neighbours or business associates; and explain clearly to clients what the obligations of social collateral are.
Governance
i) Observe high standards of governance, ensuring fairness, integrity and transparency by inducting persons with good and sound reputation, as members of board of directors. The MFI should ensure that the majority of the directors are independent directors and/or duly elected representatives of the community served, and that the board would be involved in all policy formulation and other important decisions.
ii) Ensure transparency in the maintenance of books of accounts and reporting/ presentation and disclosure of financial statements by qualified auditor/s.
iii) Put in the best efforts to follow the Audit and Assurance Standards issued by the Institute of Chartered Accountants of India (ICAI).
iv) Place before the board of directors, a compliance report indicating the extent of compliance with this voluntary mutual code of conduct, specifically indicating any deviations and reasons therefore, at the end of every half financial year.
Feedback/ Grievance Mechanisms
i) Establish effective and efficient feedback mechanism.
ii) Take steps to correct any errors and handle complaints speedily and efficiently. Wherever a complainant is not satisfied with the outcome of the investigation into her complaint, she should be notified of her right to refer the matter to the Ethics and Grievance Redressal Committee constituted by Sa-Dhan.
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