1. 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

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

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

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

5. 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

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

7. 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

8. 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

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

13. 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

14. 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

15. 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

16. 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

17. 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

18. Thank you