Major microfinance lenders of India have come together to set up a Lenders’ Forum to promote transparent, responsible and commercially sustainable industry practices and codes of conduct so as to better safeguard the interests of the poor and the unbanked who form their client base. The Lenders’ Forum – possibly the first such initiative globally in microfinance – will be led by SIDBI, the largest single lender to microfinance. Initial members include ICICI Bank, HDFC Bank, Union Bank of India, IDBI Bank, Axis Bank, Rabo India, RBS, HSBC, IndusInd Bank and Syndicate Bank. Together, these lenders account for approximately 80% of all microfinance support to the MFIs in the country.
Members of the Forum have already reached consensus on key areas of focus and would reflect these in the form of common loan covenants in the agreements with the Micro Finance Institutions, including on the measurement and disclosure of the all-inclusive interest rate; measurement of adherence to the sector’s code of conduct; reporting of operational and financial data (including interest rates) to an information platform that SIDBI is establishing; and cost- and information-sharing amongst lenders on loan portfolio audits as part of appraising proposals from MFIs. These covenants will be introduced in their respective loan agreements to microfinance institutions (MFIs).
“Our goal is to make sure that India continues to be a global leader not just in terms of outreach, but in fact, leads the global industry on transparency, client protection, efficiency and good governance.” said N.K. Maini, Deputy Managing Director at SIDBI. The Lenders’ Forum will enact its agreed covenants with immediate effect.
“With rapid growth of the sector, lenders to the microfinance industry are coming together to ensure that growth of the industry is sustainable, that clients are protected and codes of conduct are implemented” added Rajiv Sabharwal, Executive Director, ICICI Bank.
Sector associations have welcomed the move. Mathew Titus, Executive Director of Sa-Dhan (the largest Microfinance Sector Association) and Member of the PMO Council on MSME, said: “By supporting measurement of the Code of Conduct and disclosure in data, the Lenders Forum’s actions will reinforce initiatives by Sa-Dhan to improve the quality of information on the microfinance sector in public domain.” Alok Prasad, CEO, MFIN (an association of NBFC-MFIs) also welcomed the initiative, saying that “this is yet another proactive measure on the part of the industry to grow responsibly. We, at MFIN, would be happy to work with SIDBI and other lenders in promoting responsible microfinance”
“The Lenders’ Forum pushes new frontiers. It’s important, not just because it’s the first such initiative globally, but because it signals to the world that the Indian microfinance sector is serious about its responsibilities to its core clients: poor people” said Stephen
Rasmussen, Senior Advisor at CGAP, the global policy and research center dedicated to advancing financial access for the world’s poor.
Indian MFIs covered over 2.67 crore borrowers in March 2010, with an estimated gross loan portfolio of over Rs.22,000 crores, higher than that covered under the SHG-bank linkage program. The fast growth of the sector, high investor interest, and continued strong operational and financial performance have generated a lot of debate among various stakeholders, including thought leaders, media and the public alike. The Lenders’ Forum will support the focus of the microfinance community to grow sustainably, and to continue outreach to the poor and unbanked in a responsible manner.
“Our work will not stop with the Forum. We are undertaking a study to map the interest rates in the sector, working with the leading provider of global microfinance data to develop an India-specific website for policy makers, practitioners, and other stakeholders to get detailed information on all aspects of MFI performance, and have supported the development of third party code of conduct assessments which will be piloted in October. All these actions are global first time initiatives, and will help make the Indian microfinance sector a leader in responsible finance, just as it is a leader in growth” said Mr. P.K. Saha, Chief General Manager at SIDBI.
Source : SIDBI