'Responsible Credit', nurse order of the day
At the outset, treat let me congratulate all the ESAF team members for doubling the company's portfolio to Rs 150 crores, in the last FY 2009-10. It once again underscores our capability to thwart all sorts of challenges and come up trumps. At a time when the company is making quantum leaps at the international level, it is imperative to continue focusing on our mission and functioning as humble heroes for the poor.
In order to improve the governance practices, MFIN (the NBFC_MFI association), has put in place a code of conduct that MFIs need to observe. It is intended to strike a balance between the industry's social and commercial goals. It is true that commercial orientation is required to support the substantial growth the sector has witnessed so far, but a fine balance between the social and commercial aspects is also equally important. In short, 'Responsible Credit' is the order of the day.
The MFIN code of conduct stipulates that not more than three microlenders can lend to a single borrower and their cumulative loan offer should not exceed Rs 50,000/-(for unsecured loans). Over exposure of loans can lead the borrower to a debt trap and the lender will be the ultimate sufferer. So it is necessary to have a thorough understanding of the client's repayment capability and cash flow before lending. Another point that the code instructs is not to resort to any abusive or unethical tactics to collect dues. Observing this rule is important as it upholds the principles and values of the sector. The need for transparency is another point that the code insists. In order to fill the gaps in the disclosure mechanism, the code specifies to mention all features of the loan including Interest Rate, Processing Fee, Security Money and Insurance Premium in the Pass Book or in the Application Form. The MFIN code also proposes to encourage a grievance redressal system and offers ways to tackle incidence of large massive defaults.
I am happy to reveal that our established practices are not different from the code of conduct formulated by MFIN. We take this as an opportunity to re-assure that we are on the right path. We conduct training sessions for the staff on the values to be followed while interacting with the clients. On the transparency side, boards showing interest rates are displayed in all the branches in vernacular languages (loan documents are also available in vernacular languages). Moreover, we have created a Grievance Redressal Forum and placed complaint boxes in all the branches. At the branch level, we have also formulated Branch Advisory Committees with Cluster Level Client Leaders as participants. We also rely on visual presentations for effective communication. Yes, I can say that our practices truly conform to the code of conduct formulated by MFIN.
K. Paul Thomas
Managing Director, ESAF Microfinance