1. Reforms in Practice: Code of Conduct and Self Regulation

2. Relevance of Self Regulation
Puts the customer back to the centre stage: raises dignity, trust, loyalty and improves decision making of clients
Aims at long term sustainability
Supplements laws of the regulators
Improves public trust
Makes the industry accountable for its actions
Bridges expectation gap and manages reputation risk

3. National and International Experiences in Self Regulation
Advertisement Industry in Brazil: successful self regulation with clear rules and strong enforcement
Self-regulation by the Swiss Bankers Association (SBA): self regulation on capital flight, money laundering; backed by regulatory authority
Indian Bank’s Association: voluntary ground rules on business conduct
AMFI self regulation for mutual funds: planned to be SRO by SEBI

4. Approach to Self Regulation
Client protection and ethical microfinance discussed in Sa-Dhan as early as 2004
Sector faced crisis in 2006 in Andhra Pradesh, 2008 in parts of Karnataka and elsewhere
2007: introduction of Code of Conduct by Sa-Dhan -largely as a voluntary effort.
Later Studies indicated need for an effective and more comprehensive attempt

5. Approach to Self Regulation
2009/2010: review of Code of Conduct and design of implementation strategy
31th August 2010: a refined Code of Conduct adopted by Sa-Dhan General Body
September 2010: start of data collection
November / December 2010: first set of workshops on Code of Conduct and validation of reported data across India
Report on client protection and social performance of Indian MFIs available here at conference (including data analysis and implementation strategy for MFIs and Sa-Dhan)

6. Basic Principles of Self Regulation
Transparency
Fair-play
Honesty
Self implementation and monitoring
Enforcement

7. The Pillars of the Code Integrity and ethical behavior Transparency
Fair practices
Avoiding overindebtedness
Appropriate interaction and collection practices
Privacy of client information
Governance
Client education and financial literacy
Competition
Feedback and grievance mechanism

8. Important Aspects Under Each Pillar: Integrity
Treat clients and employees with dignity
Incorporate transparent and efficient practices
Client education on Code

9. Important Aspects Under Each Pillar: Transparency
Disclosure of all terms and conditions
Spelling out in writing rate of interest and method of charging and other charges
Terms of repayment
Provide information on savings/ other financial service
Provide written statements of accounts

10. Important Aspects Under Each Pillar: Fair Practices
Financial services to be provided irrespective of gender, caste or religion following fair practices
Collateral free loans following principles of Microfinance
Provision of courteous and efficient services through cost effective means
Release all securities on repayment

11. Important Aspects Under Each Pillar: Avoiding Overindebtedness
Need based finance to clients based on repayment capacity
Appropriate non credit inputs (services) with transparent terms

12. Important Aspects Under Each Pillar: Recovery Practices
Well defined policy to deal with client default
Avoiding inappropriate occasions and harsh and socially unacceptable methods for recovery
More use of social collateral

13. Important Aspects Under Each Pillar: Privacy of Client Information
Keeping client information confidential
Disclosure only with permission of client

14. Important Aspects Under Each Pillar: Governance
High standard of governance – one third independent directors
Transparent accounting policies with full disclosure
Approval of CEOs compensation by the board
Compliance report on Code of Conduct every year to the board

15. Important Aspects Under Each Pillar: Client Education and Financial Literacy
Provide full information on products and services to clients so they can make informed choices
Conduct periodic client surveys to identify gaps in client’s expectations
Design products and procedures in tune with customer needs

16. Important Aspects Under Each Pillar: Competition
Regular interaction with other MFIs
Fair and ethical practices for recruitment
For Future Expansion, Explore un-served and underserved areas

17. Important Aspects Under Each Pillar: Feedback and Grievance Mechanism
Set up compliant redressal mechanism
Designate an official to handle complaints
Notify clients of grievance redressal mechanism
Inform clients of Ethics and Grievance Redressal Committee of Sa-Dhan as appeal mechanism

18. Important Aspects Under Each Pillar: Compliance Mechanism
Ethics and Grievance Redressal Committee of Sa-Dhan to function as the SELF REGULATOR
Regular feedback to Sa-Dhan on level of compliance
Data validation through field and desk monitoring
Complaints on non adherence to be dealt with by the committee
Stiff punishment norms for non-compliance
Regulators/Funders/Rating agencies to examine level of compliance using the Code of Conduct framework

19. Road Ahead for the Sector

20. Road Ahead for MFIs
Adoption of Code by the Board of Directors
Internalisation of the Code into policies, guidelines, manuals, operating instructions, forms and software
Dissemination and training: Code to be part of MFI communication and appearance, staff and client training
Implementation at ground level: Code to be integrated into incentive structure of MFIs
Feedback mechanism: creation of grievance redressal mechanism in organisation; education of clients and staff about it; Sa-Dhan Ethics and Grievance Redressal Committee (EGRC)
Monitoring: feedback collection and regular review by Board, inclusion of Code of Conduct in internal inspection /audit, regular reporting to Sa-Dhan

21. Road Ahead for Sa-Dhan
Data collection: ‘On and offsite’ tracking of compliance to Code of Conduct
Capacity building: workshops to improve client protection based on data collection
Enforcement: compliant redressal through Ethics and Grievance Redressal Committee--Removal from membership as final option for non compliance
Stakeholder engagement: Regular information on level of Code compliance of sector through reports, events and media engagement

22. Information Flow in Self Regulation

23. Present Level of Compliance
Feedback on implementation of Code of Conduct collected from 109 member organizations
Out of this, 37 were validated through field visits/ desk review
Results show gaps in implementation: client appraisal, feedback mechanism need improvement, Code needs to be integrated into internal inspection/ audit
Greater effort in internalization and greater commitment from the top management for Code adherence
Results of data collection to form inputs for coming workshops across India

24. Sum up Outcome -MFIs treat clients and community as partners
submit to self regulation and demonstrate to all stake holders the sector’s willingness for self discipline
Re- focus on the customer and thus create customer loyalty
Substantially lower reputation and political risk
Improve credibility in the eyes of the funders/regulators
Put the sector on a sure road to sustainability

25. Help and support
For general inquiries, Sa-Dhan Code of Conduct team (Delhi), Telephone: ,
For reporting on Code of Conduct, Sa-Dhan member services, Telephone: ,
Sa-Dhan regional office Hyderabad, Telephone: ,

26. Help and support Language Name of Sa-Dhan specialist Telephone English
Thomas Mehwald (Code of Conduct Coordinator)
Hindi
Punit Kumar Singh
Oriya
Susanta Kumar Behara
(0)
Telugu
Dr. Krishna Reddy
Tamil
K. Natarajan
Bengali
A. Nandi

27. Help and support
Thank you.