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> Posted by Jeffrey Riecke, Senior Associate, CFI
India has received much fanfare for its financial inclusion efforts in recent years. A few weeks ago we declared it our Financial Inclusion Country of the Year for 2015 in recognition of the major steps it took, which resulted in achieving the greatest improvement in its Global Microscope score between 2014 and 2015. It recently granted new bank licenses that dramatically diversify and grow the country’s services landscape, widely applied new cost-saving technologies like biometric identification, and rolled-out historically ambitious public programs like PMJDY that dramatically reduce the portion of the population that is unbanked.
“Never waste a good crisis” said Royston Braganza, CEO of Grameen Capital India, at the Inclusive Finance Summit in Delhi last month, referring to the Andhra Pradesh crisis of 2010. The recently-released Responsible Finance India 2015 analyses the current state of practice on responsible finance and social performance management in India. In light of that report, Braganza questioned, “Have we learned from our mistakes?”
Responsible finance centers on client protection and market conduct, and has been extended in recent years to include many other good corporate citizenship issues such as employee management, governance, and social performance monitoring.
By way of context, here are a few numbers on the present-day BoP Indian finance landscape:
- Across MFIs in India’s MFIN network, which represent roughly 90 percent of MFIs in the country, loan books grew by 64 percent in the last fiscal year, compared with 43 percent in the year prior and 4 percent in the year before that.
- In total, MFI outreach in the country accounts for about 100 million clients.
- Reportedly, through PMJDY 180 million new bank accounts have been opened over the past year, and adjacent schemes covering insurance, pensions, and credit have been implemented, as well.
- For the first time in a decade, the RBI granted new bank licenses last year – to Bandhan Bank and IDFC. Bandhan now has 500 branches and over 2,000 service centers across 24 states. Sixty-five percent of IDFC’s first 23 branches are located in rural areas of Madhya Pradesh.
- Under the RBI’s newly created categories of payment banks and small finance banks, 11 and 10 providers, respectively, have received new licenses, further expanding the network of providers serving the poor.
> Posted by Juan Blanco, Associate, Financial Inclusion 2020, CFI
In the client protection section of the FI2020 Roadmap to Financial Inclusion, a specific recommendation was made for financial providers to embrace consumer protection as part of their professional identity, and applying a “financial consumer bill of rights” was identified as a key action point.
Looking into the state of this industry area for our upcoming FI2020 Progress Report on Financial Inclusion, I came to realize that the subject of consumers’ bills of rights is not as straightforward as it seems. Although the recommendation from the roadmap was aimed specifically at providers, the truth is that this is an area where a diversity of players is getting involved. I found a range of approaches: codes of conduct, codes of ethics, charters of rights, and bills of rights, coming from a wide spread of stakeholders, from MFIs to global associations to governments. At the heart of each of these initiatives was the same objective: for service providers to operate ethically and responsibly.
> Posted by Jeffrey Riecke, Communications Associate, CFI
A proactive step for client protection was recently taken in Laos when the country’s Microfinance Association (MFA) established an industry code of conduct focused on client protection. Laos’ code centers on the client protection principles and the accompanying Smart Certification standards, which designate how institutions can instill fair client treatment in their practices. The code was developed by the MFA following a Smart assessor training in late 2013, and was reviewed by the Campaign to ensure accurate reflection of the client protection principles and standards. In April, the code was presented at an MFA member meeting, where all members present committed to embedding it throughout their institutions. This new code fills an important gap, given that client protection regulation for financial services is not well developed in the country.
Established in 2007, the Microfinance Association and its members represent a growing share of the country’s industry. Members include MFIs, as well as donors, training institutes, and individual experts and advocates. The 32 MFIs that are members make up roughly 50 percent of Laos’ formal microfinance industry by number of clients.
> Posted by Hema Bansal and Pallavi Sen, the Smart Campaign and MFIN
On June 16th the Microfinance Institutions Network (MFIN) was officially recognized as the Self Regulatory Organization (SRO) for non-bank financial company (NBFC) microfinance institutions in India. With this, MFIN not only became the first network to attain such recognition in India, but also in Asia and perhaps in the world.
An SRO is an organization that has been authorized by a statutory regulator or a government agency to exercise control and regulation on its behalf over certain aspects of an industry. Established in 2009, MFIN is an association of NBFC-MFIs acting as their primary representative body. As an SRO, MFIN will essentially support the RBI in ensuring compliance to regulatory prescriptions and the Industry Code of Conduct.
Subsequent to the Andhra Pradesh crisis, the RBI had instituted a subcommittee of the Central Board of the Reserve Bank under the chairmanship of Shri Y. H. Malegam to study issues and concerns in the microfinance sector in India. The committee submitted its report in January 2011, thereby providing concrete recommendations and guidelines for the creation and recognition of microfinance NBFCs in India. Except for setting in place an SRO, all the other recommendations of the committee were implemented by the RBI in 2012. These other guidelines included establishing a credit bureau, the Guidelines on Fair Practices Code for NBFCs, and additional guidelines on loan size, target clientele, interest rates, transparency, collection practices, and multiple lending. With MFIN recognized as an SRO, the RBI is now implementing the last remaining Malegam Committee recommendation.
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