Implementing Responsible Finance in MFI’s Suresh K Krishna Former Managing Director – Grameen Koota Founder & MD – Yunus Social Business Fund Bengaluru Pvt. Ltd Director – BinaArtha Ventura Presented at Indonesia Seminar on Multiple Lending and Credit Bureau 5 October 2016

Indian MFI’s Portfolio Growth RBI Regulation Credit Bureau MFIN Estd MFI Crisis * Source Sadhan & MFIN

PAN India MFI Performance Disbursement Outstanding Source: MFIN Microtrends Dec 2015 From Equifax Credit Information Services

MFI Acquisitions on MFI’s Over & Multiple Lending Over Charging Bad recovery & disbursement practices Not Transparent Profiteering from Poor

Importance of RF Clients have no bargaining power Illiterate Clients Exorbitant Interest Inappropriate Product Lack of Transparency Lack of Client Data Confidentiality Clients have no bargaining power Inadequate Staff Training Clients Exploitation MFI – Driven by Target/Growth Inappropriate Management Policies

RF Practices – Key Stakeholders Clients Association Credit Bureau Regulators Lenders Rating Agencies MFI

Role of Association Clients Collaboration Competition Crisis Establish Code of Conduct – Monitor Compliance Develop data quality & reporting standards Publish concentration, overlapping, performance reports of MFI sector Define transparency, disbursement, recovery standards Establish 6 C’s amongst MFI for ensuring client protection Establish regional chapters to watch stress buildup & avoid over crowding Become the voice of the sector & ensure establishment of appropriate policy & regulation Clients Cooperation Collaboration Competition Crisis Credit Bureau Credit Flow

Avoids over & Multiple lending & defaults Credit Bureaus (CB) Avoids over & Multiple lending & defaults Checking CB data before lending MFI upload data regularly Common Data Formats CB Trend Reports Regional Concentration Default & Overdue Trends CB usage data Disbursement & Repayment Trends Outreach & Penetration Levels

PAN India MFI Performance Disbursement Outstanding Source: MFIN Microtrends Dec 2015 From Equifax Credit Information Services

Supportive Regulation Role Regulation Supportive Regulation Acceptable level of indebtedness Transparency & disclosure requirements Governance & audit requirements Mandate CB reporting & usage MFI Association can use collective bargaining power to influence appropriate policy regulation

Loan agreement to include RF Practices part Lenders Loan agreement to include RF Practices part Adaption of Client Protection Principles CB reporting & usage MFI to comply with Code of Conduct Appropriate disbursement & recovery practices

Should Include & give weightage Rating Agencies Should Include & give weightage Client Protection Principles Appropriateness of product, disbursement & recovery practices Interest rate setting policy Internal Audit system checking RF practices How much governance over sign on RF practices Appropriateness of performance incentives

Role of MFI Policies Recruitment & Training Adaption of Client Protection Principles Transparency Disbursement & Recovery Policy Employee Compensation & Incentive Policy Adaption of Client Centricity Caps on Employee Productivity Process Operating Manuals Disbursement & Recovery Process RF compliance in Internal Audit System Automate CB data upload & checking Display Posters KPI’s to include RF goals – employees & management Training Client Protection Over lending Credit Bureau usage Client Education on Financial Literacy Continuously Educating Staff by sharing overlapping, concentration, overdue reports

Benefits of RF Sustainable & Profitable MFI’s Responsible Finance Practices Transparent & affordable Interest Rates Products which meets lifecycle needs Appropriate collection practices Avoids Mass defaults & Crises Enhanced Funding to MFI Increase in Profitability Sustainable & Profitable MFI’s

Thank you