> Posted by MFIN

In 2013, the Reserve Bank of India (RBI) announced a significant policy move in the form of Self Regulatory Organization (SRO) guidelines for the microfinance industry. An SRO is an organization that has been authorized by a regulator to exercise control and regulation on its behalf over certain aspects of an industry. In the case of Indian microfinance, an SRO supports the RBI in ensuring compliance with statutory regulations and the Industry Code of Conduct, while also taking up research, training, data analytics, and capacity building of the sector. The SRO architecture has dramatically altered the landscape of the Indian industry, providing stability to the industry, with more robust market discipline and customer protection.

MFIN, whose membership consists of 52 NBFC-MFIs which account for over 90 percent of India’s microfinance business, was recognized as an SRO by the RBI in June, 2014. Since then, MFIN has worked towards putting in place an effective SRO framework, with borrower protection as the focal point. One of the important obligations of the SRO in line with the RBI guidelines is to have an independent redressal mechanism for addressing the grievances of microfinance clients. In order to standardize the grievance redressal mechanism and to ensure a common minimum benchmark, MFIN drew on the existing grievance redressal mechanisms (GRMs) of 45 MFIs and worked in partnership with the Smart Campaign to cull out the good practice from these models. The idea was to put in place a three tier mechanism based on the capacity of the MFI concerned, and the Smart Campaign was asked to work on such a model whose aim was to standardize and ultimately strengthen the practices of the member institutions.

A diagnostic investigation and mapping of existing grievance redressal mechanism practices of MFIN member organizations formed the foundation of the study. This was based on self-reported data provided by the MFIs to MFIN, telephone interviews, Smart Assessments of MFIs’ practices, and field visits to MFIs. While self-reported data has its limitations, it enabled, in combination with the other data sources, the creation of a baseline for performance relevant for development of the Grievance Redressal Mechanism Framework.

The Smart Campaign combined these local inputs with global sources to arrive at standards of grievance redressal for the Indian microfinance industry. Good practices from within the microfinance industry in India, RBI regulation, India’s Industry Code of Conduct, and international quality standards were evaluated to build the broad framework. This framework was examined against the Smart Campaign’s standards and compliance criteria for the Client Protection Principle on Mechanisms for Complaint Resolution and best practices globally.

The Grievance Redressal Mechanism Framework that was created has 17 performance standards that are bucketed into 9 categories:

  1. Commitment: In order to demonstrate commitment, an institution is required to have a grievance redressal mechanism policy or framework in place, which needs to be approved by its board.
  2. Communication: Much of the effectiveness of the grievance redressal mechanism of an institution depends on the way in which the frontline staff inform clients on how and where to submit a complaint or provide feedback.
  3. Visibility and Access: Institutions need to adequately display names and contact details to the clients.
  4. Use and Effectiveness: Institutions have multiple complaint resolution systems in place, and have set up procedures and allocated staff with responsibilities to ensure that complaints are resolved in time.
  5. Continuous Improvement: MFIs review their grievance redressal mechanism and make changes to the system on a regular basis.
  6. Resources: Grievance redressal mechanism systems are supported with sufficient resources like backend technology, systems to log and escalate complaints, and efficient outbound calling systems.
  7. Personnel and Training: Institutes appoint independent staff to register and resolve complaints; induction training for staff covers how the grievance redressal mechanism works; and there is a clear complaint escalation matrix.
  8. Remedies: Based on complaints, MFIs make corrections to their policies and staff are appropriately penalized.
  9. External Review: Internal audit monitors the system through sample checks of clients to determine if complaints have been addressed satisfactorily.

A first of its kind globally, the framework that evolved is a ‘Three Level Progressive Framework’, consisting of the above nine broad parameters with three progressive levels. Within the framework, Level III demonstrates ‘Adequate Indicators’ for Grievance Redressal Mechanism Framework; Level II shows that the institution is making progress and is categorized as ‘Intermediate Level’; and Level I, the most ‘Basic Level’, demonstrates the minimum specifications that all institutions irrespective of size need to satisfy.

MFIN’s 52 members are spread across the length and breadth of the country; they are diverse in size, geographic presence, and organizational capacity. Hence, the framework factors in the capacity of different MFIs and provides guidance to the MFIs to reach the next level in a frame of roughly a year’s time.

Commenting on the Grievance Redressal Mechanism Framework, Ms Ratna Vishwanathan, CEO of MFIN said: “As there were already existing mechanisms in place, there was little point in reinventing the wheel. Since MFIs were comfortable with their GRMs, it was decided that the base of the structure needs to be existing good practice. What we have effectively managed to do is cull out good practice, standardize it and add value by incorporating global good practice.”

In order to share the framework with MFIN members and strengthen grievance redressal practices in the industry, three regional workshops were conducted by the Smart Campaign and MFIN between August and December 2015. The objective of these one-day workshops was not only to disseminate the framework, but to also support peer learning and good practices existing amongst members.

To ensure that the MFI staff is empowered to scale up and strengthen the systems and processes for grievance redressal mechanisms in their institutions, MFIN developed a tool called the “Grievance Redressal Mechanism Accelerator”, which helps to monitor the progress of the Grievance Redressal Mechanism Framework. The tool has a dashboard and gives a graphical overview of the organizational performance on various parameters.

Image credit: Accion

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