MFIs plan code of conduct after RBI rap 

Vow To Improve Public Dealing & Governance, To Review Lending Rates After March 

The countrys leading microfinance players have pledged to improve the way they deal with borrowers from poorer sections and promised to review lending rates after March. For starters, Sa-Dhan , the national association of micro-finance institutions (MFIs), is planning to put in place a more stringent code of conduct for its members. 
While Sa-Dhan has been working on the new code for quite some time, what expedited matters is its recent talks with the Reserve Bank of India (RBI), where the banking regulator expressed concern over operational irregularities and governance issues in MFIs. 
These institutions have now agreed to restrain from unethical competition and restrict their exposure to existing borrowers of other lenders. The code, which is on the anvil shortly, also dwells on issues like high-handed recovery tactics, lending limits, overlapping of loans, cash flow examination of borrowers and no-poaching agreement between members. 
The fresh code is expected to be ready by March. In fact, the Micro-finance Institution Network (MIN)the new and exclusive association for NBFC-MFIs (MFIs registered as NBFCs)is carrying out a similar exercise simultaneously. Sa-Dhans members can also be non-NBFC micro lenders. 
Under Sa-Dhans umbrella, MFIs will meet in the first week of March and all members may sign the code of conduct. Sa-Dhan is also putting in place a control committee so that all rules are administered properly, SKS Microfinance vice-president (operations) KV Rao told ET. 
We have been working on the new code for quite some time now. This will be an important step to improve the credibility of the growing MFI sector. We are in a business which needs to be carried out ethically to create maximum value for our poor customers, said Bandhan managing director Chandra Shekhar Ghosh, who is on the board of both Sa-Dhan and MIN. 
In the light of the RBIs moral suasion for lowering interest rates, MFIs have also decided to review their cost of funds and cost of operations to examine the possibility of reducing lending rates. We will review it after March, Mr Ghosh said. 
According to Village Financial Services managing director Kuldip Maity, lending rates have fallen to around 12.5% per annum from 15-17 % four-five years ago, and MFIs are reviewing the possibility of lowering lending rates again. 
Besides, the associations have urged members to go soft while recovering loans, especially at a time when borrowers are in a dire situation. The members are also conscious of the fact that reviewing of cash flow of the borrowers and their repaying capacity is something where no laxity should be tolerated. Otherwise, the borrowers fall into a debt trap, Sahara Uttarayan CEO Kartick Biswas said. 

Economic Times, New Delhi, 18-02-2010.