It speaks of ethical behaviour, client protection and governance

MAJOR microfinance institutions (MFIs) in the country have agreed to follow a code of conduct, officials of Sa-Dhan, the 232-member industry association said on Monday. This is being seen as an attempt to bring some order in the MFI industry, which has faced allegations of charging exorbitant interest rates from the poor borrowers.

Announcing the code of conduct after the first national level consultation me eting, Mathew Titus, executive director, Sa-Dhan said: “We are concerned ab out the reports of malp ractices. We are hoping the co de of conduct will be strictly followed by members. We are also encouraging peer reviews on a nonmutual basis so that reviews will be neutral. The code applies to providing credit services, recovery of credit, collection of thrift etc.” Sa-Dhan, whose members fall in the for-profit, not-for-profit as well as selfhelp linkage segments in the MFI industry, was set up in 1998. Its members reported outstanding loan positions of around Rs 22,000 crore to Rs 24,000 crore as

on March 31, 2010.

It is estimated that there are around 800 MFIs in India, most of which are unorganised players.

The code, a 10-page document, focuses on ethical behaviour (appropriate pol icies and operating guidelines), transparency (disclosing terms and conditions to clients, loan sanction letters with details, among other things), client protection (fair practice, avoiding over-indebtedness and collection procedures) and privacy of client information and governance.

The code also details on

governance (at least 1/3rd of directors board are independent), financial literacy, competition and a feedback mechanism.

Vivekananda N Salimath, chairman of IDF FSPL (an MFI), said all members of Sa-Dhan will report regularly on indicators derived from the code and the analysis of this report will be made public.

If members do not respond to complaints or choose to ignore corrective measures, the board of the industry association may decide to expel the member and shall take steps to in form the expulsion to other stakeholders, according to Dr. Amiya Sharma, co-chair Sa-Dhan (and also executive director of RGVN).

Reacting to suggestions that the code may not have enough teeth, CS Reddy, CEO of APMAS and Board Member of Sa-Dhan, said they plan to share details of non-cooperative members with lenders (commercial banks) and rating agencies so that all the stake-holders in the industry ecosystem can take steps against such MFIs.