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MAHASHAKTI FOUNDATION (MF)

CODE OF CONDUCT ASSESSMENT FOR

MAHASHAKTI FOUNDATION

Date of Report 04th January, 2016 Valid Till 03rd January,2017

MAHASHAKTI FOUNDATION (MF

RATING

Code of Conduct Assessment Score : COCA Rating – COCA 3 (Above Average Level of Adherence)

RATING SCALE

Rating

COCA 1

COCA 2

COCA 3

COCA 4

COCA 5

COCA 6

MATRIX

82%

81%

Integrating Social

Values Into

Operations

Relationship

Management and

Feedback

Mechanism

Compliance Status

of MFI vis-à-vis

the Recent RBI Guidelines


Code of Conduct Assessment Score : 81% COCA 3 (Above Average Level of Adherence)

Rating Definition

Very High Level of Adherence

High Level of Adherence

Above Average Level of Adherence

Average Level of Adherence

Below Average Level of Adherence

Low Level of Adherence

82%

81%

83%

75%

80%

80%

81%

0%

100%

Client Origination

& Targeting

Loan Pricing &

Transparency

Loan Appraisal

Privacy of Client

Information

Staff Behaviour &

Client Grievance

Handling

Performance

2

Rating Definition

Very High Level of Adherence

High Level of Adherence

Above Average Level of Adherence

Average Level of Adherence

of Adherence

Low Level of Adherence

Loan Appraisal

3


EXECUTIVE SUMMARY

The Code of Conduct report for Mahashakti Foundation (MF) evaluates the company’s adherence to

various code of conduct parameters. The study examines and comments upon the common minimum

indicators such as:

• Client Origination & Targeting

• Loan Pricing & Transparency

• Loan Appraisal

• Privacy of Client Information

• Staff Behaviour & Client Grievance Handling

• Integrating Social Values Into Operations

• Relationship Management and Feedback Mechanism

• Compliance Status of MFI vis-à-vis the Recent RBI Guidelines

SMERA believes that MF exhibits Above Average Level of Adherence to all parameters and

consequently complies well with the code of conduct laid out. This document details SMERA’s approach

and methodology for this study and gives observations of its assessment team while conducting the

evaluation. The Approval; Documentation; Dissemination and Observance (ADDO) framework has been

used for assessment and measuring MF adherence towards ethical operational practices.

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SNAPSHOT

MFI Name MAHASHAKTI FOUNDATION

Registered Office Address

Madanpur Rampur,

Kalahandi – 766 102, Odisha India

Telefax (91) (6676) (250507)

Fax (91) (6676) (250607)

Administrative Office

In front of State Ware House

Railway Station Road, Balangir – 767 001 Odisha India

Email

[email protected]

[email protected]

[email protected]

Line of Business Microfinance services using Self Help Groups, Education loan, Housing loans etc and Livelihood Development Projects

Chief Executive Mr. Jugal Kishore Pattnayak,

Managing Director

Legal Form NGO-MFI (Trust)

(Registered in Odisha under India Trust Act,1882)

Incorporation Date 19/Oct/2004

Date of Commencement of Microfinance Operations

01/Apr/2005

Total Employees 180 (As on Dec 31, 2015)

No. of Active Branches 19 (As on Dec 31, 2015)

Geographical Reach Odisha

Visit of the Assessment Team 27th to 29th December, 2015

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BACKGROUND

Mahashakti Foundation (MF) was established in 2004 as a trust (Registered in Odisha under India

Trust Act, 1882) in Kalahandi district of Odisha with support from FARR-CARE CASHE project of

DFID (Govt, of UK).It was set up with the objective of providing financial inclusive services in

underserved and unserved parts of Odisha. MF has significantly expanded its reach and has

presence in seven Districts carrying out various social and economic projects under the guidance of

218 qualified and experienced staff members.

MF with deeper penetration in the under-served parts of Odisha is an organization of social

entrepreneurs focusing on following areas

• Promoting Pro-Poor Livelihoods & micro-enterprises including entrepreneurship,

• Micro-finance way to promoting Social & Economic Enterprises including Healthcare and Sanitation,

• Safe Drinking Kits,

• Nutrition,

• Creating a cadre of community based Village Health Guides,

• Community School Teachers

• Micro-Planning with Village Councils with public and private service institutions.

The above diversity of services also supplements and supports the Micro-Credit Products of MF and also

enhances the credentials and trustworthiness of relationship between MF and Micro-Finance borrowers

in a very matured way The targeted communities mostly includes Minority groups, Youth, Artisans,

Women, Marginal farmers and many others who are in a still very deprived and disadvantageous

condition.

Vision

“Mahashakti Foundation Visualizes an egalitarian society of justice, economic independence,

empowerment and peace”

Mission

“Organize the poor, build up their capacities and provide them access to relevant sustainable livelihood

development services with dignity and transparency”

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Governing Body Profile

Name Position Educational Qualification Profile

Mrs. Aradhana Nanda President MA Economics (Utkal

University)

More than two decades of

experience in the field of social

development. Served in different

NGOs since 1978 with the

responsibility of planning and

coordination of entire program,

staff assessment, monitoring &

supervision of women, child

development, training &

development, HIV/AIDS

counseling, gender training,

capacity building & livelihood

development.

Mr. Santosh Kumar

Mishra

Vice

President

M.A (Mathematics),

Odisha Administrative

Service (Retd)

More than 40 years of experience

in the field of rural development.

Served as ASO, Tahasildar, and

Block Development Officer in

different blocks of rural Odisha.

Mrs. Rojaleen Bhuyan Secretary MSW, B.ED (Utkal

University)

Development Practitioner for the

last 10 years and has 5 years of

experience in the field of

programme operations in

livelihood development

Mr. Prakash Chandra

Sahu

Treasurer B.A, PGDCA 20 years of experience in social

sector, micro finance & livelihood

development.

Mr. Sanjeeb Nayak Asst

Secretary

B.A (Hons), LLB An Ex-banker with 28 years of

experience in formal banking

sector and also involved in social

development forums for more

than a decade.

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Mr. Sanjaya Kumar

Makhija

Member M.Com, Chartered

Accountant

More than 15 years experience in

the field of financial management,

Internal Audit, Taxation, Audit of

different Public Sector Banks and

financial institutions.

Mr. Jugal Kishore

Pattnayak

Member cum

CEO

MA (Political science &

Rural development),LLB,

Diploma in Micro Finance

(IIBF), Mumbai

Two decades of experience in the

field of livelihood development

and worked as Project officer of

FARR CARE CASHE (Credit and

Savings for Household

Enterprise) of CARE (DFID

supported)

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Management’s Profile

Name Position Qualification Profile

Mr. Jugal Kishore

Pattnayak

Managing Director MA (Political science & Rural

development),LLB, Diploma in

Micro Finance (IIBF), Mumbai

Two decades of

experience in the field of

livelihood development

and worked as Project

officer of FARR CARE

CASHE (Credit and

Savings for Household

Enterprise) of CARE

(DFID supported).

Mr. Devarshi Negi Director - Finance MBA (Finance) from Institute for

Technology and Management,

Chennai, Diploma in Strategic

Management, IIM Kolkata.

An ex-banker with

experience of almost

two decades in various

capacities with different

banks & financial

institutions. In his

previous assignment

with Sahaj E Village

Limited, he is also

credited for successfully

establishing a

profitability business

model in financial

inclusion space.

Mr. Mohan

Baliyarsingh

Director

Operations

Post Graduate Diploma in

Management from Bhanjavihar,

Berhampur University and Post

Graduation in History, Utkal

University.

Two decades of

experience in livelihood

and microfinance

operations. A major part

of his career has been

devoted towards

management of

Microfinance Projects

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and training programs

on various facets of

microfinance including

financial literacy in

English, Hindi and local

languages.

Mr. Jyoti Ranjan

Mohapatra

Director

Administration

M.com, ICWAI Along with co-founder

of Mahashakti

Foundation, he has

diversified experience in

operations, finance,

audit, management

information system

(MIS).Also works on

capacity building of

community level

institutions on

institutional

development

Mr. Bikram Kesari

Patra

Head - Finance B.Com (Utkal University) Almost a decade of

experience in various

discipline like finance,

audit, management

information system

(MIS).

Mr. Jogananda

Behera

Head – Social

Development

operations

MBA (Human Resource) More than 10 years of

working experience on

livelihood promotion

and community health.

Mr. Arun Kumar

Pattnaik

Head - Head

Internal Audit &

Risk Management

MBA (Finance) Expertise in Internal

Audit /Risk

management of Social

development accounts

as well as Micro Credit.

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Mr. Saroj Kumar

Sahoo

Head - Operations MBA (Marketing) Worked with different

MFIs like SKS, Asmita,

and Muthoot Finance in

various capacities. Have

a rich experience

management as well as

monitoring of micro

credit operations for

almost a decade.

Mr. Rama Ballav

Pattnayak

Head Information

Technology

M.com, HWA - IT More than a decade of

experience in

information and

technology and MIS

management.

Mr. Narayan Sahu Head – Human

Resource

Post-Graduate Diploma in

Industrial Relations & Personnel

Management (HRM),L.L.B. & M-

Phil in IR&PM(HRM)

Expertise in human

resource management

as well as monitoring

the total administration.

Mr. Jayaram Parida Internal Auditor M.Com More than 20 years of

experience in financial

management, audit and

overall financial

management of NGOs

as well as financial

institutions.

Ms. Ruby Tripathy Manager – Social

Security

M.A More than 07 years of

working experience in

the field of management

of NGOs as well as

social security program

Mr. Bimal Kanta

Panda

Regional Manager Master in social work More than three decades

of experience in

Livelihoods, Human

rights and microfinance.

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Mr. Simanchala

Pattnayak

Regional Manager M.A More than three decades

of experience in

Livelihood, social and

Microfinance projects.

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HIGHLIGHTS OF OPERATIONS

Particulars 31/Mar/2013 31/Mar/2014 31/Mar/2015 30/Nov/2015

No. of States 01 01 01 01

No. of Districts 5 6 6 7

No. of Branches 11 11 16 19

No. of SHGs 413 1017 2040 2814

No. of active borrowers 4178 11057 23688 32630

No. of employees 43 72 108 142

No. of field officers (FOs) 30 44 63 79

Cumulative

loan

disbursements

(` thousands)

MSF*

630,407 685,371 744,584 784,350

YBL* 0 45,838 280,154 503,991

Loan

disbursements

during* the

year (` in

thousands)

MSF 43,401 54,964 59,213 39,766

YBL 0 45.838 234,316 223,837

No. of Loans

Disbursed

during the year

MSF 3,953 4,909 5,832 3.426

YBL 0 3,167 14,884 12,599

Portfolio

outstanding

(`in thousands)

MSF 46,441 56,857 76,572 91,247

YBL 0 44,722 196,577 246,239

Loan

outstanding

per borrower

(In Rs.)

MSF 11,115 7,206 10,864 9,742

YBL 0 14,121 11,846 10,629

Active

borrowers per

FO

MSF 139 251 368 401

YBL 0 251 384 425

MSF – Mahashakti Foundation

YBL –Yes Bank Limited

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ORGANOGRAM

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PRODUCTS & SERVICES

Loan product

Loan Amount (Rs.)

Loan term / tenure

Fees and other

charges

( %)

Interest Rate

(Reducing

%)

Insurance Premium

(Rs.)

Repayment Method

Small Business

Loan 6,000-14,000 01 Year

1 % Loan Processing

Fees

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Rs.100 for

Aam Admi

Bima

Yojana of

LIC and

Rs.5/- per

Rs.1,000/-

for Other

General

Insurance

of LIC

Bi-Weekly

Micro Enterprise

Loan

16,000-

48,000 02 Years 26 Bi-Weekly

Education Loan

10,000-

20,000-

30,000

01 Year to

02 Years 18 Monthly

Solar Energy 1,800-6,600 12 months 18 - Monthly

House Repair

Loan 20,000 18 months 18

Rs.100 for Aam Admi

Bima Yojana of

LIC and Rs.5/- per Rs.1,000/- for Other General Insurance of LIC

Monthly

Housing Loan 50,000 &

1,00,000 24 months 18 Monthly

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INSURANCE

Products Name Janashree Bima Yojana

(LIC) Ordinary General Insurance (LIC)

Feature It is a Group policy It is a Group policy

Mode of Payment Yearly once Yearly once

Validity 1 year 1 year

Premium Amount Rs 100/-

0.5% of Loan Amount +

Service Tax 14.50 %

Benefits

Natural Death Rs 30,000/- Loan Amount

Accidental Death Rs.75,000/- Loan Amount

Permanent disability Rs.75,000/- NA

Partial disability Rs.37,500/- NA

Age Limit 18-59 years 18-59 years

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FRAMEWORK AND SCOPE

The current perception surrounding Indian microfinance paints all entities across the sector in the same

shade. However the fact that microfinance organizations display significant variations is important and

needs to be adequately brought out. SMERA has always comprehensively and holistically assessed the

risks involved in MFI operations and the resultant social impact of MFI operations.

Besides evaluating creditworthiness of MFIs, SMERA also assess trustworthiness, operational excellence,

quality of loans of MFIs, socio-economic impact and MFIs emphasis towards ethical behavior and

responsible lending.

SMERA has used the following framework for assessment of MFIs - The Approval; Documentation;

Dissemination and Observance (ADDO) framework for measuring adherence of MFIs towards ethical

operational practices.

As part of the assessment, SMERA visited 05 branches and head office of MF based at various locations.

The assessment was conducted as per a specific methodology and questionnaire.

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Corporate Governance

Governance, broadly defined, is the system of people and processes that keep an organization on track and

through which it makes major decisions.

“Good governance is the ability of the board members to monitor the status of the organization, make good

strategic decisions, and hold executives accountable for their execution. Ultimately, that comes down to the

quality of the board members, the culture and practice of the board, and the power relationships among

board members and executives.”

For a MFI, Corporate governance should cover,

• Client Grievance/Protection

• Employee Grievance/Protection

• Women Harassment Issues

• Credit Bureau Check etc.

As per discussion held with Mr. Jugal Kishore Pattnayak (Managing Director) it can be seen that

management of MF is very dedicated towards improving their operational efficiency. MF conducts board

meetings on regular basis and points discussed therein are implemented by second line of management &

operations team. It is observed that MF exhibits Above Average Level of Adherence of compliance

towards corporate governance needs of an MFI.

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OBJECTIVE OF THE STUDY

The objective is to evaluate NEED adherence to the code of conduct laid down by Sa-dhan, MFIN, best

practice guide by multilateral agencies and Reserve Bank of India.

The broad parameters for assessing the Code of Conduct are as follows. Also the respective scores are

mentioned in the adjacent column.

Code of Conduct Parameters % Performance

Client Origination & Targeting 82%

Loan Pricing & Transparency 81%

Loan Appraisal 83%

Privacy of Client Information 75%

Staff Behavior and Client Grievance Handling 80%

Integrating Social Values Into Operations 80%

Relationship Management and Feedback Mechanism 82%

Compliance Status of MFI vis-à-vis the Recent RBI Guidelines 81%

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Client origination is central to ethical microfinance operations. The code of conduct requires MFIs to

practice ethical client origination while extending access to financial services. Also, an MFI’s commitment

to targeting low income clients demonstrates its social mission. The way an MFI identifies and grows its

client base must be approved by the board. The board should also ensure that the MFI’s product and

services reach suitable clientele.

MF has a structured approach for operational area identification.

Village /Locality Survey After identification of a village, a staff member

travels to the village to collect basic details about

socio-economic situation, livelihood profile,

infrastructure facilities, and existing level of

indebtedness of people, other MFIs and financial

institutions in catchment area.

�

Village Meeting It is the process of making local people/target

segment aware about organization, its

mission/vision, customer’s eligibility, product,

services, process, and documentation, policies and

procedures. This process is normally undertaken

by concerned FO/BM.

�

Primary Member Selection, House Visit & KYC

Verification

FO will select 12 to 15 members and conduct

household visit and business verification for them.

In this process all the necessary client details will

be collected and will be sent to credit bureau for

clearance

�

Credit Bureau & Members Finalization After collection of primary data of potential

members by FO, it will be filled by Accountant in

the prescribed format. Then it will be checked by

CLIENT ORIGINATION & TARGETING

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BM and send to SMIT with a copy to RM for HIGH

MARK check. After getting HIGH MARK clearance

the BM will prepare the list of members for CGT

and the same will be checked by RM

�

Compulsory Group Training (CGT)

To avail loan from MF members must successfully

complete 2 days of training. Under this awareness

is created among the client regarding the

organizational mission and vision, pledge,

importance of SHG, loan products, documents

required, importance and conduct of center

meeting, center leaders responsibility,

disbursement and collection process and other

related norms and procedures. This facilitates MF

to know more and more about the customers

before actually lending them.

�

GRT & Appraisal BM conducts GRT in a specific format to ensure

that all the members selected for disbursement are

aware of the products and policies of MF and fix

loan amount as per cash flow of borrowers.BM will

then visit each and every household and collect

KYC documents to ensure the authenticity of

borrowers and the list of members finalized for

disbursement is sent to regional manager

�

Cross Verification RM does verification of loan applications on

sample basis to ensure the viability of loan amount

and enterprise.

.

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Approval Documentation Dissemination Observance • MF has approved policies of ethically originating clients. This includes ensuring identity of clients before application of loans through

appropriate documentary evidences and non-involvement of unauthorized agents in the client origination process.

• Any change in client origination practice is affected only after the Board approval.

• Policy document clearly specify the guidelines in relation to identification of operational area, branch establishment and identification of

target client .

• MF has adequate system of dissemination of its approved policies through CGT.

• Interviewed Staff members were aware of the client origination process and products.

• The client origination process was effectively implemented by the staff as framed by MF.

• SMERA recommends operational manual to be printed in the local language (Oriya) so

that the field officers will have a better understanding of the same.

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The transparency observed by the MFI in terms of pricing of loans is examined in detail. The pricing of

loans covers interest rate, loan processing charges, additional charges (service tax). Considering these

costs while pricing the loans may change the effective interest rate charged to the clients. The scientific

determination of loan price (interest rates) reflects well on the MFI’s management and it also shows how

effective the MFI is in providing loans to the clients at the least possible cost.

SMERA covers transparency by assessing honesty, communication, and accountability of the practices of

MFI through sub parameters such as frequency of training given to clients, disclosure of terms and

conditions of MFI, measuring awareness of the terms and conditions through client visit, language used

in the disclosure and surprise visit conducted by the MFI staff.

MF maintains high transparency in the interest rates charged to its clients. The organization discloses all

terms & conditions of all financial products to the borrowers including interest rate on the loan and

processing fees in local language as well as verbal communication at the time of training. The details are

printed on the loan card which is available with the borrowers.

MF offers different types of loans like small business loans, education loan, housing loan, solar projects

etc. The loan amount sanctioned depends on different parameters like product, loan cycle, repayment

track record of previous loan and attendance in centre meetings.

LOAN PRICING & TRANSPARENCY

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Approval Documentation Dissemination Observance

• MF board has approved principles of pricing loans and

transparency in a responsible manner.

• The loan pricing criteria and method of charging have

been clearly documented in the loan policy document of the organization.

• Interest rate, loan processing fee on the loans and insurance

charges are mentioned clearly on the loan card provided to the

borrower at the time of disbursement.

• Members are also given the loan

repayment schedule on loan card which clearly shows the installment amount.

• Awareness level of the borrowers about the interest rates and

method of application and other charges was observed to be good.

• Interest rate, loan

processing fee on the loans and insurance charges are mentioned clearly on the loan card

provided to the borrower at the time of disbursement and are also displayed in the branches.

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LOAN APPRAISAL

The selection of the right kind of borrower and proper assessment is critical for the success of the MFI.

The appraisal processes followed by the MFI, the checks and balances, know your customer (KYC)

documents collected by the MFI to verify the genuineness of the borrowers, the process adopted by the

MFI to avoid multiple lending / over-indebtedness and requirement of the loan are assessed in detail.

The loan appraisal should take into account the repayment capacity of the clients given the loan sizes and

the duration of the loan.

MF has good process to ensure that clients are strictly lent according to RBI directions on avoiding client

over-indebtedness (Rs 50,000 total indebtedness and loan from maximum of two sources). Yes bank

conducts credit check for the loans given under managed portfolio of MF whereas MF conducts credit

check for its owned portfolio.

MF has a policy to conduct Loan Utilization Check (LUC) for all the loans by its LUC team within 15 days

from the date of the disbursement


• MF policy requires adequate loan appraisal should be conducted before disbursing a loan and properly examines the repayment capacity of the borrowers.

• MF as per the

directions of RBI has a policy to check multiple lending / indebtness of the

borrower through credit bureau check.

• The guidelines for appraising a loan application are clearly documented in the loan policy document.

• The branch staffs were found to be aware of how to conduct the loan appraisal and LUC as per the guidelines.

• MF staff has not been trained on aspect of analyzing cash flow and take credit

decisions on it.

• MF diligently verifies each loan through credit bureau to check over indebtedness of the borrowers.

• LUC were properly conducted by the branch manager. However the date of LUC undertaken was

not documented in the loan card and LUC register.

• MF needs to have

effective mechanism to track the cash flow of borrowers.

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PRIVACY OF CLIENT INFORMATION

Client confidentiality is an important function of any organization. MFI collects personal information

about its clients that is either required or necessary to provide with financial products or services. The

MFI should not disclose or misuse non-public personal information to affiliates or non-affiliated third

parties, except as permitted by law or client privacy policy disclosure. For this, SMERA assessed whether

MFI maintains physical, electronic and procedural safeguards for the client information.

MF has an adequate system of storage and retrieval of documents and information collected from the

clients. The files containing documents and members profile are kept at the respective branches. The

relevant data is entered into the web based MIS software “e FIMO (Financial Information Monitoring

Organiser) developed by Jayam Solutions Private Limited, Hyderabad.


• MF policy requires that the information received from the clients is stored properly and unauthorized access is prohibited.

• The software has well-defined security

features.

• MF provided adequate guidelines on how the client documents and information has to be recorded and files have to be stored.

• Branch staff is well informed about how to handle important documents provided by clients.

• All the files are kept properly in all the branches. Branch staffs have access to entire data of client.

• Awareness needs to be created among borrowers about importance of privacy

of client information.

26


STAFF BEHAVIOUR

This section evaluates the process of the MFI with respect to staff selection, appraisal and incentive

mechanism, staff behavior with clients, effectiveness of the client grievance mechanism.

Staff Behavior -

MF does not have well defined policies that lay adequate emphasis on the conduct of its staff members

towards the members. MF has written HR circular related to selection, recruitment, training, evaluating

the staff performance and promotions.


• MF does have well defined policies in relation to expected

staff conduct with the clients.

• Guidelines on the expected conduct of the staff members with

the client are documented.

• The entire branch staff members interviewed displayed good level of

awareness on staff behaviour & client grievance handling.

• All staff was found to be aware of the rules of staff conduct and

grievance handling.

• Behaviour of staff towards clients was found to be

professional in almost all situations encountered.

27


INTEGRATING SOCIAL VALUES INTO OPERATIONS

Sustainability is an increasingly relevant issue for MFIs; accordingly sustainability management strategies

and practices are significant. For example, appropriate environmental and social performance objectives,

targets and indicators need to be integrated with quality, cost and other more conventional performance

measures. SMERA assess governance, board composition, and area of expertise of the board, how social

values are assessed by the management or board and the transparency in financial accounting.

MF maintains a high standard of governance and integrity by inducting persons with good and sound

reputation in the industry and understanding of microfinance as members of board of directors or

governing body. MF has qualified and professional board having diversified functional expertise. The

board members are actively involved in policy making and approvals, fund mobilization, responsible for

all decisions at a strategic level, approving business plan & new products, reviewing the performance and

other important decisions pertaining to MF.

MF vision is to facilitate provision of financial services the rural people in the Kalahandi, Balangir and

Rayagada districts (Economically backward regions of odisha) in a viable manner with focus on small

loans mainly to stimulate client’s income generating activities. It aims to spread its operations to different

states of India. MF does not charge any prepayment charges or onetime membership fee from the

borrowers. MF has provided insurance cover to its borrowers and their guarantor.


• MF has approved principles of

integrating social values into operations.

• MF mission is to help improve financial

position of lowest strata of population through economic activities.

• MF objective is to poor, build up the capacities

of poor and provide them access to relevant sustainable livelihood development services

with dignity and transparency.

• MF has a system of dissemination of its

social values.

• Staffs are made aware of social and environmental policy

of MF

• MF maintains an adequate standard of

governance and integrity in operation.

• MF regularly tracks the social and

economic progress of its clients.

28


RELATIONSHIP MANAGEMENT AND FEEDBACK MECHANISM

MFIs need to build sustainable and long term relationship with clients. Sound relationship management

enhances the quality of the clients’ experience with the MFI. This allows the MFI to better understand

clients’ needs and grievances. MFIs need to have formal mechanisms to GRT feedback and complaints

from the clients. Customer complaints should be taken seriously, investigated and resolved in a timely

manner. Responsibilities relating to receiving client grievance, feedback and action plans need to be

clearly identified and allocated. SMERA evaluates these practices in detail.

MF has a sound procedure to be responsive to client feedback and to established dedicated feedback and

grievance redressal mechanisms. As per the policy every branch has to have a complaint register in

branch & complaint box outside the branch for clients.

For any grievance Head Office number is provided in the loan card provided to the clients. Members

have been informed of this mechanism during training and group formation.


• The board has provided formal and

informal channels for feedbacks and suggestions to handle complaints of clients

• MF guidelines regarding collection of

feedback from clients and actions to be taken are documented.

• Branch and Head office number is provided to

the clients on their loan card

• Head Office number is mentioned in the loan

card provided to the clients for reporting their grievance. Members have been

informed of this mechanism during training and group formation.

• Almost all the branches have drop boxes and grievance redressal register.

29


COMPLIANCE STATUS OF MFI VIS-À-VIS THE RECENT RBI GUIDELINES

SMERA examines the adherence level of the MFIs with respect to the recent draft guidelines issued by

RBI. Thus the Code of Conduct exercise involves a comprehensive review of MFIs policies and systems

and whether these translate into ethical microfinance practices.

Conditions as per RBI Guidelines MF’s Policy Compliance

Household annual income levels for

eligible borrowers in

Rural Areas not exceeding :

` 1,00,000

Non-Rural Areas not exceeding:

` 1,60,000

The Annual income of the

clients should be below ` 60,000

in rural areas and below

` 120,000 in non-rural areas

MF is following its board

approved policies

Loan size should not exceed

1st cycle loan : ` 60,000

2nd cycle loan : ` 1,00,000

Tenure of the loan should be 24

months for amounts in excess of

` 15,000.

MF loan ranges from ` 16,000 to

` 48,000. The loan amount

depends on the loan cycle,

repayment track record of

previous loan and attendance

of centre meeting.

MF is following its board

approved policies. In some

cases it was observed that client

was directly inducted into

second cycle loan.

Total Indebtedness of the borrowers

should not exceed to ` 1,00,000

The company checks the credit

report of borrowers with Credit

Information Company (CIC) i.e.

“Highmark”.

MF meets the criteria.

Tenure of the loan not to be less

than 24 months for amounts in

excess of ` 15,000

The maximum loan size is

` 30,000 repayment tenure is 24

Monthly Installments.

In some branches it was

observed that loans in excess of

15,000 were disbursed for

tenure of less than 24 months.

Repayment frequency should be

weekly, fortnightly or monthly at

the choice of the borrower

Repayments of loans are

collected on fortnightly basis. MF meets the criteria.

30


With effect from the quarter

beginning April 01, 2014, the

interest rates charged by an NBFC-

MFI to its borrowers will be the

lower of the following:

a) The cost of funds plus margin as

indicated in para (i) above; or

b) The average base rate of the five

largest commercial banks by assets

multiplied by 2.75. The average of

the base rates of the five largest

commercial banks shall be advised

by the Reserve Bank on the last

working day of the previous

quarter, which shall determine

interest rates for the ensuing

quarter.

MF charges 26% per annum on

diminishing balance method for

all loans.

MF meets the interest rate

criteria.

Loan pricing to include processing

fee (not exceeding 1% of the loan

amount)

MF is charging processing fee

of 1.00% on the disbursed loan

amount plus applicable service

tax

MF meets the processing

charges criteria fully.

Collateral free loans

MF does not accept any

collateral for extending the

credit.

No collateral have been

accepted from the clients.

MFIs shall not collect any Security

Deposit / Margin from the

borrower.

MF does not collect any

security deposit / margin from

the borrower.

MF meets the criteria fully.

No late payment or prepayment

penalties

MF does not take late payment

or prepayment penalties from

the clients.


Membership of SRO (Self

Regulatory Organization)

MF is empanelled as member of

Sa-dhan MF meets the criteria fully

Share complete client data with at

least one Credit Information

Company (CIC) established under

the CIC Regulation Act 2005, as per

the frequency of data submission

prescribed by the CIC.

Currently MF is availing credit

bureau check from Highmark

and shares the data with them.


31


Aggregate amount of loans, given

for income generation, is not less

than 50 per cent of the total loans

given by the MFIs

MF provides loan only for the

income generation activities. MF meets the criteria fully.

Net owned funds (NOF) of Rs 50.00

million.

NOF stands at 32.09 as on

31/Mar/2015 MF does not meet the criteria

NBFC-MFIs shall maintain a capital

adequacy ratio consisting of Tier I

and Tier II Capital which shall not

be less than 15 percent of its

aggregate risk weighted assets.

CRAR of MF stands at 33.2% as

of 31st March 2015 MF meets the criteria fully


• The policies framed by board of MF mostly adhere with respect to the guidelines issued by RBI.

• Circulars have been issued to follow the RBI guidelines.

• Policies were updated / modified on most of the recent guidelines issued by RBI.

MF being an NGO-MFI almost adhere all the

guidelines issued by RBI.

32


LIST OF BRANCHES VISITED

SMERA has used the following framework for assessment of MFIs - The Approval; Documentation;

Dissemination and Observance (ADDO) framework for measuring adherence of MFIs towards ethical

operational practices. The assessment requires visits to the MFI’s head-office as well as branch offices.

This assessment includes:

1. Discussions with key staff members and the senior management at the head office and branch office,

particularly the senior operational management team as well as the human resources team. These

discussions focus on key issues of the code of conduct identified above and systems and process of

MFI.

2. Review of manuals and policy documents at the head office. These are reviewed in order to assess the

policy as well as documentation regarding important aspects.

3. Sampling of branches at the head office. The assessment team selected eight branches as samples, as

per the size of the MFI for review. Care is exercised to include old & new branches as well as

branches that are distant from the regional office and branches with the overdue.

4. Discussions with the branch staff at the field office. Discussions with field office managers and center

managers are carried out to assess their understanding of the key code of conduct principles and

systems and process.

5. Selection of groups from the sample branches. A judgmental sampling is performed on the MFI’s

clients by the assessment team to draw respondents from the interest group. Two/three centers from

each sample branches was selected for interviews. Out of which few respondents are those that have

been having problems in attending meetings. SMERA has also selected respondents those have

defaulted in the past or started repaying on defaulted loans.

6. Interview with the clients. Information from the clients is collected ideally during the centre meetings

as well as visits are made to the clients’ locations for collecting information.

7. Review of loan application at the branch office. This review focuses on loan appraisal performed

before disbursing loans as well as the documents collected from the clients.

33


As part of the assessment, SMERA visited 06 branches and head office of MF based at various locations.

The details of the branches visited are provided below.

Sr. No. Branch Names Region No. of Borrowers

Visited

1. Balangir

Odisha

25

2. Titilagarh 45

3. M. Rampur 38

4. Tusura 36

5. Dunguripali 24

6. Kesinga 20

8. Head Office -

34


SITE VISIT

Management Meeting

Compulsory Group Training (CGT / GRT)

35


Disbursement

Center Meeting (Interaction with borrowers)

36


METHODOLOGY

1. Collecting minimum documents from the MFI to understand in detail the scope of operations in

terms of areas, products, borrower profile etc.

2. Sample selection of branches (sample may be decided by taking into account the loan

outstanding portfolio, recency customer grievances received, different products concentration,

location, type of borrowers, PAR, etc.).

3. Visit to head office and understanding the code of conduct, vision and mission statement,

policies, procedures and processes of MFI pertaining to loan appraisal, loan pricing, collection

mechanism, documentation, re-scheduling & write off, etc.

4. Interacting with CEO/ Managing Director and the core team and seeking relevant information.

5. Detailed review of the processes framed for selection of areas and villages, client orientation,

group formation and pricing of loans.

6. Interaction with the groups to find out the extent of transparent disclosures, the MFI has made to

them in terms of product & services, pricing, insurance, terms and conditions, overleveraging or

multiple borrowings, frauds or corruption / commission kickbacks asked by the officers for

sanctioning of loans if any. Unethical behavior of the staff, if any, would be specifically

addressed.

7. Interaction with the COs on sample basis to assess compliance with policies and obtain their

feedback / opinion on the policies and systems with specific focus of customer grievances and

feedback mechanisms. The incentive structure for the staff would also be assessed.

8. Prepare detailed report and submit to management for review.

9. Prepare final report and submit to the management.

37


Questionnaire for the field visit

1 Name of the Member

2 How did members came to know about the MFI and who motivated to form the group

3 What Kind of training provided before sanctioning of loan?

4 Does anyone visited the house pre and post disbursement

5 Loan amount taken

6 Amount Applied for (If sanctioned is less – Reason)

7 Interest Rate and any other Charges

8 Any commission paid to anyone for availing loan

9 Purpose of Loan

10 Mode of Repayment

11 Installment amount

12 Aware of pending installments or balance outstanding

13 Any penalty charged

14 What are the KYC documents submitted?

15 Where the disbursement of loan happens and under who’s presence?

16 Where collections of loan take place?

17 Any delays / default at present or in past, If Yes, what is the reason?

18 Number of Family members

19 Earning Family Member

20 Occupation of Spouse

21 Monthly Family Income

22 Number of Childers going School

23 Aware about any other MFIs operating in the area

24 Loan from Any other MFIs’ / Bank / Moneylender / others

25 If Yes,

26 Name of the MFIs’ / Bank / Moneylender / others

27 Amount Taken and Interest Rate

28 Is the group formed by the persons living in nearby vicinity?

29 Knows the house / name of each group member?

30 What are the responsibilities of the group?

31 Attendance of members

32 Saving habit among the group members?

33 Dominant nature of group leader?

34 Familiar with the branch manager / staff?

35 How are the interaction / behaviour of the MFI staff?

36 Process / Awareness of feedback / Complaints mechanism?

37 Have made any complaints in past?

38 Any Request / demand

******************************************The End******************************************

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