The Code of Conduct (CoC) for microfinance was framed for the first time in 2011, which was subsequently updated in the year 2015. The 3rd edition of the CoC for the Microfinance Industry was released in September 2019. The CoC applied to NBFCMFIs and other providers of microfinance1 which were members of the Self-Regulatory Organization (SRO).
The primary focus of the Industry Code of Conduct has always been to promote and advance ‘responsible lending’ practices in microfinance. Much of the academic work, business practices and regulatory directions on microfinance in India and globally, broadly converge towards the core principles of fair treatment, suitability, transparency, privacy, and grievance redressal. Building on this knowledge, the industry’s own experience of CoC over the years and the evolving landscape of micro-credit in the country, this CoC continues to focus on ‘responsible lending’ practices. Given that customers of micro credit may not always fully understand the product and its impact, it is imperative that microfinance providers take greater responsibility to ensure that customers’ interests are protected.
As different types of Regulated Entities (REs)2 were governed by different regulatory frameworks in the microfinance sector, the Code for Responsible Lending (CRL) was also released in September 2019. CRL was sector-specific and entity agnostic and included the most critical elements required to be adopted by REs while delivering microfinance. The voluntary acceptance of CRL by the REs and other microfinance providers was a very important step and signalled a consensus across the microfinance sector about the approach to be followed for customer-centric issues such as transparency and guarding against over-lending. This was a critical initiative in ensuring that microfinance achieved its intended objectives in a responsible manner and supported the economic and social progress of its customers.
The Reserve Bank of India (Regulatory Framework for Microfinance Loans) Directions, 2022 effective from April 1st, 2022 (Harmonized Regulations) are based on the regulation of the ‘activity of microfinance’ and are agnostic to the ‘type of entity’ involved inthe activity. These regulations are applicable to all the Regulated Entities (REs) as mentioned below:
1) All Commercial Banks (including Small Finance Banks, Local Area Banks, and Regional Rural Banks) excluding Payments Banks
2) All Primary (Urban) Co-operative Banks/ State Co-operative Banks/ District Central Co-operative Banks; and
3) All Non-Banking Financial Companies (including Microfinance Institutions and Housing Finance Companies).
The Harmonized Regulations have necessitated a revision of the Industry Code of Conduct for the microfinance industry. The revised code enumerates important features
1 NGOs, Societies, Trusts, Co-operatives, Section 8 companies
2 Commercial Banks, Co-operative Banks, NBFCs, NBFC-MFIs, HFCs.
of the new regulations to be followed by all the REs in the microfinance sector as well as industry best practices. The applicability of this code is detailed in section III. It may also be noted that the Industry CoC 2019 and CRL 2019 are henceforth being discontinued and this document, i.e., the 4th edition of the Industry Code of Conduct 2022, has been instituted in their place.
1) A microfinance loan is defined as a collateral-free loan given to a household having an annual household income of up to ₹3,00,000. For this purpose, the household
shall mean an individual family unit, i.e., husband, wife, and their unmarried children. (Clause 3.1)
2) Each RE shall put in place a board-approved policy for assessment of household income. (Clause 4.1)
3) Each RE shall have a board-approved policy regarding the limit on the outflows on account of repayment of monthly loan obligations of a household as a percentage
of the monthly household income. This shall be subject to a limit of maximum 50 percent of the monthly household income. (Clause 5.1)
4) Each RE shall provide timely and accurate data to the CICs and use the data available with them to ensure compliance with the level of indebtedness. (Clause 5.4)
5) Each RE shall put in place a board-approved policy regarding pricing of microfinance loans. (Clause 6.1)
6) Each RE shall disclose pricing-related information to a prospective borrower in a standardized simplified factsheet. (Clause 6.3)
7) A fair practices code (FPC) based on these directions shall be put in place by all REs with the approval of their boards. (Clause 7.1.1)
8) Each RE shall have a board-approved policy regarding the conduct of employees and system for their recruitment, training, and monitoring. (Clause 7.2.1)
9) Outsourcing of any activity by the RE does not diminish its obligations and the onus of compliance with these directions shall rest solely with the RE. (Clause 7.3.1)
10) Each RE shall put in place a mechanism for identification of the borrowers facing repayment related difficulties, engagement with such borrowers, and providing them necessary guidance about the recourse available. (Clause 7.4.1)
11) Recovery shall be made at a designated/central designated place decided mutually by the borrower and the RE. However, field staff shall be allowed to make recovery at the place of residence or work of the borrower if the borrower fails to appear at the designated/central designated place on two or more successive occasions. (Clause 7.4.2)
12) The REs shall have a due diligence process in place for engagement of recovery agents, which shall, inter alia, cover individuals involved in the recovery process. (Clause 7.5.2).
1) This code is applicable to all the lenders of microfinance – Regulated Entities (REs) as well as other microfinance providers3.
2) For REs and other microfinance providers who are members of the Self-Regulatory Organization (SRO), CoC is obligatory to follow and is a necessary condition for membership. SROs would enforce adherence to the CoC by members.
3) All other REs and microfinance providers (irrespective of legal form) delivering micro-credit loans are strongly encouraged to voluntarily adopt the CoC.
4) As micro-credit is the key product offered by microfinance providers to low-income market segments, the focus of CoC is ‘responsible lending’ practices. However, the underlying principles of customer protection (fair treatment, suitability, transparency, privacy and grievance redressal) can very well be applied to other financial products offered by the providers.
5) REs and other microfinance providers are required to adhere to all legal and regulatory requirements as required by the RBI, SEBI, IRDA, Central & State Government Acts etc. It may be noted that CoC is in addition to these compliances and does not substitute them. In the event of future regulatory changes, if provisions of code and regulation are not in conformity, the regulations will prevail.
The Code has seven elements:
3.Provider is defined as an entity which provides micro-credit in line with norms as defined by the RBI in the Regulatory Framework for Microfinance Loans, Directions, 2022.
A. Fair Interaction
1) The RE and any other microfinance provider must ensure that borrower is not unfairly discriminated against on grounds such as religion, caste, gender, marital status, sexual orientation, etc.
2) The RE and any other microfinance provider must ensure that all employees and persons acting on its behalf:
a) Undergo training on how to exhibit appropriate behaviour towards the borrowers.
b) Use respectful language, maintain decorum, and show respect to social and cultural sensitivities.
c) Do not use coercion of any sort to make recovery of loans and take recovery only at a central designated place. An employee can take recovery at the place of residence or work of the borrower only if the borrower fails to appear at the central designated place on two or more successive occasions.
d) Do not intimidate or humiliate verbally or physically.
e) Do not contact borrowers at odd hours or at inappropriate times such as bereavements, illness, social occasions such as marriages and births.
f) Do not harass relatives, friends, neighbours, or co-workers of the borrower.
3) A Fair Practices Code approved by the board of the RE and any other microfinance provider shall be displayed in vernacular/a language understood by the borrower in all the offices and the website of the RE.
4) The RE and any other microfinance provider must ensure that the engagement of the recovery agents and their interaction with the borrowers is as per the guidelines mentioned in the Harmonized Regulations.
B. Suitability
The RE and any other microfinance provider must disburse the loan commensurate with the borrower’s ability to repay. The RE shall ensure a limit of maximum 50 percent on the outflows on account of repayment of monthly loan obligations of a household as a percentage of the monthly household income. The computation of loan repayment obligations shall take into account all outstanding loans of the household.
The RE and any other microfinance provider should ensure that the Interest rates and other charges/fees on microfinance loans are not usurious and there should not be any pre-payment penalty charges.
The RE and any other microfinance provider should ensure that the household income is properly computed by considering the income of the borrower, spouse, and their unmarried adult children.
The RE and any other microfinance provider must use a valid4 CCIR(Comprehensive Credit Information Report) for the borrower and all the household5 members of the borrower before sanctioning any loan. It is clarified that valid CCIR must be used for all loans including small value top-up loans, and second and subsequent cycle loans.
To ensure that the CCIR remains current and valid, each RE and any other microfinance provider shall mandatorily submit timely (preferably daily) and accurate information including household income and other parameters to the Credit Information Companies (CICs).
The RE and any other microfinance provider should not sanction/disburse a loan to a borrower who has non-performing (delinquency> dpd 90 days) accounts with loan amount outstanding >?3,000 with another RE or any other microfinance provider6. This is specifically applicable to microfinance loans7.
C. Education & Transparency
1) The RE and any other microfinance provider must provide key information to the borrower and include them in the loan documents such as the loan application, loan sanction letter, loan agreement, and loan card. This must include:
i) Identity and address of the RE.
ii) Identity and address of the borrower.
iii) Product details (simplified factsheet on pricing in the format specified in the RBI regulations, including instalments received and the final discharge and other key terms and conditions).
iv) Details of customer grievance redressal system.
2) The RE and any other microfinance provider must ensure that the issuance of third-party products is done with full consent of the borrowers, kept voluntary and the fee structure for such products is explicitly communicated to the borrower.
3) The RE and any other microfinance provider must communicate with the borrower in vernacular/a language understood by the borrower. The communication could pertain to the terms and conditions of the loan, entries in the loan card, fair practices code, standard form of loan agreement, factsheet on pricing of the microfinance loan, and other such communication pertaining to the loan and non-credit products and their servicing.
4) The RE and any other microfinance provider must take measures (such as training, assessment, and periodic interactions with borrowers) to ensure that borrowers fully understand the products, process, and terms of the contract.
5) The RE and any other microfinance provider must provide a receipt/ acknowledgement for every payment, including the digital payments, received from the borrower.
6) The RE and any other microfinance provider must give emphasis to educating customers on the importance of timely repayment for good credit history with the CICs, benefits, risks and necessary safeguards of digital financial transactions and grievance redressal mechanism including internal and external escalation mechanism8.
7) The RE and any other microfinance provider must educate customers against blind trust on group and centre leader and how any default in the fictitious loan (also referred to as ghost lending/pipelining taken by group/ centre leader in customer’s name) can ruin her credit records and access to credit in the future. This should be a part of the Compulsory Group Training (CGT)/Group Recognition Test (GRT) process. The RE must also strive to ensure customer attendance in the group meetings. Any training offered to customers should be free of cost.
8) The RE and any other microfinance provider must disclose the reason to the customer if her loan is rejected. For this purpose, an easily accessible channel through which the borrower can enquire about the status of her application should be provided.
9) Please refer to the Annexure for details of disclosure requirements in branches and loan documents.
4 CIR (Credit Information Report) is considered as ‘valid’ for fifteen calendar days from the date of extraction of the CIR. This implies that the REs needs to disburse the loan within fifteen calendar days from the date of extracting the CIR
5 Clause 3.1 of the Harmonized Regulations states that the ‘Household’ shall mean an individual family unit, i.e., husband, wife, and their unmarried children
6 Exception to this is available to loans affected by natural calamities which are qualified under RBI Guidelines for Relief Measures in areas affected by Natural Calamities for Banks and NBFCs https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=11394&Mode=0, https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10531
7 This clause is applicable from 1st Jan 2023.
D. Information & Privacy
1)The RE and any other microfinance provider must obtain copies of KYC documents from borrowers as per the RBI norms.
2)The RE and any other microfinance provider must upload accurate and comprehensive borrower data with all RBI approved Credit Information Companies (CICs) as per Uniform Credit Reporting Format.9
3)The RE and any other microfinance provider must take the borrower’s consent for checking her CCIR and her acceptance of the terms and conditions of the loan. Consent should also be obtained from the borrower’s household members for checking their CCIRs as per the extant regulations and laws.
4) The RE and any other microfinance provider must promptly address any dispute raised by the borrower about her data with CICs.
5) The RE and any other microfinance provider must have systems to safeguard borrower and borrower’s household members’ data as per the
accepted principles of data protection including collection limitation, purpose specification, use limitation, incorporation of access controls etc.
6) The RE and any other microfinance provider must keep borrower and borrower’s household members’ personal information strictly confidential. This information may be disclosed to a third-party subject to any of the following conditions:
i) Such information is required to be provided under the law or it is provided for a mandated business purpose (for example, to credit information companies)
ii) Borrower/borrower’s household members have been informed about such disclosure and prior permission has been obtained in writing
iii) The party in question has been authorized by the borrower/borrower’s household members with intimation to the RE and any other microfinance provider to obtain their information.
8 External escalation mechanism must include regulatory channels available to customer to escalate including Ombudsman where applicable
9 On a weekly frequency for NBFC-MFIs.
E. Grievance Redressal
1) The RE and any other microfinance provider must have a board-approved customer grievance redressal policy covering the process to register, resolve
and escalate the complaints, internal and external escalation mechanism, complaint categories and TAT, review/audit of redressal system, and reporting to the board and top management.
2) The RE and any other microfinance provider must provide a robust customer grievance redressal system to address complaints in an effective and timely manner. RE and any other microfinance provider must provide easy access to redressal system to all its borrowers through a dedicated phone number or a staff-assisted procedure at the branch to register grievances.
3) The RE and any other microfinance provider must clearly communicate the details of customer grievance redressal system in branches, loan documents, and other communication materials.
4) The RE and any other microfinance provider must have a mechanism as part of its grievance redressal framework for redressal of recovery-related grievances, the details of which must be provided to the borrower at the time of loan disbursal. However, this does not imply that RE, and any other microfinance provider should have a separate redress mechanism for recovery related grievances. REs and any other microfinance provider can re-structure/re-organize the existing redressal system to identify and promptly address recovery related grievances.
5) The RE and any other microfinance provider must at least have one grievance redressal officer to oversee the customer grievance redressal function.
6) The RE and any other microfinance provider must record and analyze individual and aggregate level data for grievance redressal system capturing the nature of complaints, action taken, and turn-around time. Report on grievances received, resolved, and pending along with the nature of complaints should be shared with the board for review.
F. Employee Engagement
1) The RE and any other microfinance provider must recruit a candidate from another RE based on a satisfactory reference check and should not confirm the employee without a relieving letter from the previous employer.
2) The RE and any other microfinance provider is encouraged to participate in Employee Bureau to submit their employee’s data and check candidate’s
employment records.
3) The RE and any other microfinance provider must give comprehensive induction training to the employees on policies, processes, and regulations. Emphasis should be given to CoC related aspects on borrower-interface aspects such as fair treatment, household and income assessment, the privacy of data, service quality, customer grievance redressal system, POSH, relationship management, dealing with borrower facing difficulty in
repayment, etc.
4) The RE and any other microfinance provider must regularly assess employee’s understanding of the above elements and conduct refresher training to address the gaps in understanding.
5) The RE and any other microfinance provider must train their employees on understanding and dealing with gender issues including appropriate interaction with women colleagues and customers.
6) The RE and any other microfinance provider must necessarily orient their employees on professional conduct and integrity issues including expected behaviour and not indulging in any unlawful and anti-social activities.
7) The RE and any other microfinance provider must engage new employees in the branch-level business operations only after completion of their induction training.
8) The RE and any other microfinance provider must ensure that employees directly responsible for grievance redressal system receive detailed training about the system, processes, and soft skills required for resolving complaints.
9) The RE and any other microfinance provider must set targets for the branch-level employees based on a reasonable-objective criterion including an understanding of microfinance requirement and repayment capacity in an area.
10) The RE and any other microfinance provider must have a well-defined protocol to be followed by employees to handle risks arising from going to difficult areas and cash handling.
11)The RE and any other microfinance provider must have a well-defined protocol to be followed by employees to handle risks arising from going to difficult areas and cash Compensation matrix for the staff should be designed in a manner to align their behaviour with fair interaction practices as mentioned in Section IV. A of this
12) The RE and any other microfinance provider, while recruiting an employee, must honour the notice period as mutually agreed between prospective employee and his/her current.
13) The RE and any other microfinance provider must respond to request from other RE/microfinance provider for reference check within 15 calendar days/a reasonable time-period from the receipt of such communication.
G. Others
1)The RE and any other microfinance provider must have a board approved framework to deal with crises arising from natural disasters, mass defaults, negative media, local-level hostility, etc., which is reviewed periodically.
2)The REs and any other microfinance provider, who have underlying digital (i.e., paper-less) processes for sourcing (loan application), borrower consent, due diligence, contracts, disclosures, payment receipts, grievance redressal, etc. must ensure that these processes are aligned with the applicable regulatory norms and borrower is made fully aware, educated, and comfortable with digital modes of Any new initiatives encouraging digital transactions should be introduced keeping in mind the borrower’s level of knowledge and comfort. During the initial adoption of digital methods, an enhanced focus on grievance redressal system and customer handholding should be
3)The RE and any other microfinance provider must prominently display information about the interest rates charged on microfinance loans in its offices, literature issued by it and its
4)The RE and any other microfinance provider agrees to share updated pricing information to the highest granularity possible with the SROs for publishing as required by the RBI.10
5)The RE and any other microfinance provider, if withdrawing operations from an area, must make alternate arrangements to service the existing loans of its As an example, an arrangement with an existing RE and any other microfinance provider, in such cases can be worked out to receive loan repayments from borrowers.
6)The RE and any other microfinance provider must ensure that the well- being (For ex: adequate remuneration, working hours, working conditions etc) and security of their employees is given due importance.
10. Applicable only to NBFC-MFIs.
1) The RE and any other microfinance provider must get the Industry CoC signed by the Chief Executive (or equivalent senior management personnel), backed by a
board resolution of the company11.
2) REs and any other microfinance provider adopting the Industry CoC must:
i) Take the responsibility to align own policies and processes to adhere to the norms of CoC.
ii) Take the responsibility to incorporate a professional governance system to ensure that employees and persons acting on their behalf are oriented and trained to follow the CoC into practice.
iii) Must voluntarily agree to CoC’s governance & enforcement framework to ensure adherence to the CoC.
3) Compliance would be based on a three-pronged approach
i) Half-Yearly/Quarterly12 Adherence report on/by RE and any other microfinance provider based on independent data from a Credit Information Company (CIC) in a standard template13. Self- reported data by the microfinance providers, who are not covered under the CICRA.
ii) Peer complaint system whereby RE and any other microfinance provider can bring forth the instances of non-compliances to the SROs.14
iii) Monitoring and assessment facilitated by the SROs.15
CODE FOR RESPONSIBLE LENDING AS DEVELOPED BY Sa-Dhan & MFIN
Fair Interaction
Provider must ensure that customer is not unfairly discriminated against on grounds such as religion, caste, marital status and sexual orientation.
Provider must ensure that all employees and persons acting on its behalf.
Suitability (avoiding multiple/over lending)
Provider must use a valid4 CIR before sanctioning any loan. It is clarified that CIR must be used before disbursing all loans including small value top-up loans, second and subsequent cycle loans
Provider must disburse the loan commensurate with the customer’s ability to repay. While disbursing a loan, Provider must ensure that:
Education & Transparency
Identity and address of Provider
Providers must take measures (such as training, assessment and periodic interactions with customers) to ensure that customers fully understand the products, process and terms of the contract.
Information & Privacy
Provider must obtain copies of KYC documents from customers as per RBI norms.
Provider must keep personal customer information strictly confidential. Customer information may be disclosed to a third-party subject to any of the following conditions:
Such information is required to be provided under the law or it is provided for a mandated business purpose (for example, to credit information companies)
Grievance Redressal
Providers must provide a robust customer grievance redressal system to address customer complaints in an effective and timely manner.
Governance & Enforcement
Grameen Shakti Microfinance Services PVT. LTD. (GSMS) shall adopt the following fair practices in conformity with RBI guidelines laid down in the Master Circular dated July 1, 2015 in this regard.
(i) General
(a) The FPC in both English and vernacular languagewill be displayed by GSMS in its office and branch premises.
(b) A statement will be made in vernacular language and displayed by GSMS in their premises and in loan cards articulating their commitment to transparency and fair lending practices.
(c) Field staff will be trained to make necessary enquiries with regard to existing debt of the borrowers.
(d) Trainingoffered to the borrowers shall be free of cost. Field staff will be trained to offer such training and also make the borrowers fully aware of the procedure and systems related to loan / other products.
(e) The effective rate of interest charged and the grievance redress system set up by GSMS will be prominently displayed in all its offices and in the literature issued by it (in vernacular language) and on its website.
(f) MFIs must declare all interest and fees payable as an all-inclusive Annual Percentage Rate (APR) and equivalent monthly rate.
(g) A declaration that GSMS will be accountable for preventing inappropriate staff behaviour and timely grievance redressal, will be made in the loan agreement and also in the FPC displayed in its office/branch premises.
(h) The KYC Directions will be complied with. Due diligence shall be carried out to ensure the repayment capacity of the borrowers.
(i) All sanctions and disbursement of loans will be done only at a central location and more than one individual must be involved in this function. In addition, there will be close supervision of the disbursement function.
(j) Adequate steps will be taken to ensure that the procedure for application of loan is not cumbersome and loan disbursements are done as per pre-determined time structure.
(ii) Disclosures in loan agreement / loan card
(a) SCPLwill have a Board approved, standard form of loan agreement. The loan agreement will preferably be in vernacular language.
(b) In the loan agreement, the following will be disclosed:
a. All the terms and conditions of the loan,
b. That the pricing of the loan involves only three components viz. the interest charge, the processing charge and the insurance premium (which includes the administrative charges in respect thereof),
c. That there will be no penalty charged on delayed payment,
d. That no security deposit / margin is being collected from the borrower,
e. That the borrower cannot be a member of more than one SHG / JLG,
f. The moratorium period between the grant of the loan and the due date of the repayment of the first installment,
g. An assurance that the privacy of borrower data will be respected.
(c) The loan card will reflect the following details:
i. The effective rate of interest charged,
ii. All other terms and conditions attached to the loan,
iii. Information which adequately identifies the borrower and acknowledgements by GSMS of all repayments including installments received and the final discharge,
iv. The loan card will prominently mention the grievance redress system set up by the GSMS and also the name and contact number of the nodal officer,
v. Non-credit products issued will be with full consent of the borrowers and fee structure will be communicated in the loan card itself,
vi. All entries in the loan card will be in the vernacular language.
(iii) Non-coercive methods of recovery
(a) Recovery will normally be made only at a central designated place. Field staff will be allowed to make recovery at the place of residence or work of the borrower only if borrower fails to appear at central designated place on two or more successive occasions.
(b) SPL will ensure that Stems for their recruitment, training and supervision. Training to field staff will include programs to inculcate appropriate behaviour towards borrowers without adopting any abusive or coercive debt collection / recovery practices.
(c) Penalties may be imposed in cases of non-compliance by field staff with the Code of conduct. Generally, only employees and not out sourced recovery agents will be used for recovery in sensitive areas.
(iv) Customer Protection Initiatives
(a) GSMS will ensure that greater resources are devoted to professional inputs in the formation of SHG/ JLG and appropriate training and skill development activities for capacity building and empowerment after formation of the groups. GSMS will also be prudent and responsible in their lending activity.
(b) GSMS will conduct proper due diligence as per its internal credit policy to access the need and repayment capacity of client making a loan and only make loans commensurate with client’s ability to repay.
(c) If a client has two loans from two separate MFIs, then irrespective of the source of the loans, SCPL will not be the third lender to that client. And GSMS will validate the same by Credit Bureau Report prior to extension of loan.
(d) GSMS must not under any circumstance breach the total limit as prescribed by RBI. This will be validated by Credit Bureau prior to disbursement of loan.
(e) GSMS after due verification of credit bureau reports will ensure that loans given on the basis of joint liability group of borrowers (JLG Loan) is restricted to Rs. 60,000 per borrower. Where loan to a specific borrower exceeds Rs. 60,000, or the loan takes the total debt of debt of the borrower above Rs 60,000, such a loan should be given as an individual loan without involving the JLG. GSMS will take necessary steps to have appropriate systems and staff with required competencies to deal with individual loans.
(f) GSMS should carry out test checks of efficacy of their processes related to avoidance of over-indebtedness through additional credit bureau reports on select sample of credits after loan disbursement. The result of this verification will be reviewed by board of GSMS.
(g) GSMS will use UIDAI number (Aadhaar number) based KYC to reduce errors in identification of borrowers in credit bureau reports.
(h) GSMS will ensure that all the staff and persons acting on behalf of the GSMS:
- Use courteous language, maintain decorum, and are respectful of cultural sensitivities during all interactions with clients.
- DO NOT indulge in any behavior that in any manner would suggest any kind of threat or violence.
- DO NOT contact clients at odd hours.
- DO NOT visit clients at inappropriate occasions such as bereavement, etc., to collect dues even if two or more successive repayments are not received.
(i) GSMS must provide a valid receipt (in whatever form decided) for each and every payment received from the borrower and record the payment in the loan passbook/ loan card with the client.
(j) GSMS will have detailed board approved process for dealing with clients, at each stage of default.
(k) GSMS must keep personal client information strictly confidential. Client information may be disclosed to third parties subject to following conditions:
- Client has been informed about such disclosure and prior permission has been obtained in writing.
- The party in question has been authorized by the party with intimation to GSMS to obtain client information.
- It is legally required to do so.
- This practice is customary amongst financial institutions and available for a close group on reciprocal basis (such as Credit Bureau) provided that the 1. Clients’ prior consent has been obtained and 2. The receiver of the information is also bound by the conditions to keep the client information confidential.
(v) Governance
GSMS must incorporate a formal governance system that is transparent and professional, and adopts the following best practices of corporate governance:
a) GSMS must observe high standards of governance by inducting persons with good and sound reputation as Board of Directors / Governing body and seek to comply with best standards stipulated in Companies Act and RBI regulations for NBFC MFI.
b) GSMS will endeavor to have independent directors to the extent of 1/3rd of the Governing Board.
c) GSMS must have a Board approved debt restructuring product/program for providing relief to borrowers facing repayment stress.
d) GSMS will appoint an audit committee on Board with an independent director as chairperson.
e) GSMS will ensure transparency in the maintenance of books of accounts and reporting/ presentation and disclosure of financial statements by qualified auditor/s.
f) GSMS must put best effort to follow the Audit and Assurance Standards issued by the Institute of Chartered Accountants of India (ICAI).
g) GSMS must place before the Board of Directors, a compliance report indicating the extent of compliance with this Code of Conduct and the functioning of the grievance redressal mechanism at various level of management, specifically indicating any deviations and reasons therefore, at regular intervals, as may be prescribed by Board.
(vi) Recruitment / HR
a) As a matter of free and fair recruitment practice, there will be no restriction on hiring of staff from other MFIs by legitimate means in the public domain like general recruitment advertisement in local newspapers, web advertisements, walk-in interviews, etc.
b) Whenever GSMS will seek to recruit an employee in another MFI, it will be mandatory to seek a reference check from current employer. The reference check will be sought from current employer only after an offer is made and an offer letter is issued to the prospective employee.
c) GSMS will respond to the reference check requests from another MFI within two weeks.
d) GSMS will honour notice period as contractually agreed between employer and employee subject to a minimum of one month for an outgoing employee.
e) GSMS shall NOT recruit an employee of another MFI, irrespective of the grade/level of the employee, without the relieving letter from the previous MFI employer. An exception can however be made in instances where the previous employer (MFI) fails to respond to the reference check request within 20 days. GSMS must provide such relieving letter to the outgoing employee in case he/she has given proper notice, handed over the charge and settled all the dues towards the MFI, except in proven cases of fraud or gross misconduct by the employee.
f) Whenever GSMS will recruits from another MFI, at a level up to the Branch Manager position, the said employee shall not be assigned to the same block where he/she was serving at the previous employer, for a period of 1 year.
g) GSMS must not collect shortfalls in collection from employees and HR policies must categorically denounce this practice. However, in proven cases of fraud by employees, GSMS may be allowed to recover the money from said employee(s).
Further GSMS shall adhere to core values and code of conductset up by Self-Regulatory Organization for NBFC MFIregulated by RBI. These core values are:
A) Integrity:
To provide low income clients – women and men, and their families, with access to financial services that are clients focused, designed to enhance their well-being, and delivered in a manner that is ethical, dignified, transparent, equitable, and cost effective.
B) Quality of Service:
- To ensure quality services to clients, appropriate to their needs, and delivered efficiently in a convenient and timely manner.
- To maintain high standards of professionalism based on honesty, non-discrimination and custom centricity.
C) Transparency:
- To provide complete and accurate information to clients regarding all products and services offered.
- To create awareness and unable clients and all other stakeholders to understand the information provided with respect to financial services offered and availed.
D) Fair Practices
- To ensure that clients are protected against fraud and misrepresentation, deception, or unethical practices.
- To ensure that all practices related to lending and recovery of loans are fair and maintain respect for client’s dignity and with an understanding of client’s vulnerable situation.
E) Privacy of Client Information
- To safeguard personal information of clients, allowing disclosures and exchange of relevant information with authorized personnel only, and with the knowledge and informed consent of clients.
F) Integrating Social Values into Operations
- To ensure high standards of governance and management focused on not only financial performance but also social impact of business
- To monitor and report social as well as financial data
- To assess the social performance and the social relevance of the institution from time to time.
G) Feedback and Grievance Redressal Mechanism
- To provide clients formal and informal channels for feedback and suggestions.
- To consistently assess the impact of services in order to enhance competencies and serve clients better.
- To provide a formal and easy to access grievances redress mechanism for clients.
Communication of Grievance Redressal Mechanism to Clients
Clients are informed about their rights to file complaint or raise any grievance related to GSMS.
Process for Clients Recording Complaints
Complaint Resolution Mechanism
GSMS have a designated GRO (GM, Compliance), who is ultimately responsible to ensure that client grievances are satisfactorily addressed. GRO will analyze grievance data and provide periodic reports on grievances to the Senior Management and to the Board
All data and information related to credit is shared by GSMS with RBI approved Credit Bureau Organisations from time to time for both gathering and sharing member database.
