MFIN and Sa-Dhan launches ‘Code for Responsible Lending’

Microfinance Institutions Network (MFIN) and Sa-Dhan along with FIDC (Finance Industry Development Council) have jointly launched the ‘Code for Responsible Lending’ (CRL) for the micro credit industry. The CRL was launched at Sa-Dhan’s 15th Annual National Conference held in New Delhi. Sa-Dhan is Reserve Bank of India (RBI) recognised self-regulatory organisation and industry association for the microfinance industry.

About ‘Code for Responsible Lending’

The CRL is sector-specific and entity-agnostic. A common CRL unveiled would bar more than three lenders offering loans to a single borrower and cap the size of total lending to Rs.1 lakh per borrower.

A significant development in CRL adoption was signing up of Finance Industry Development Council (FIDC) which makes CRL more inclusive in its coverage. FIDC is the self-regulatory organisation for registered NBFCs.

CRL will be a step in right direction to restore confidence in non-banking lending community, as this will bring better discipline and harmony among asset financing, loan financing and micro financing NBFCs.

In addition to CRL, a revised industry Code of Conduct (CoC) was also released for Microfinance Institutions (MFIs) that will act as a binding and compulsory set of principles with respect to lending practices.

Currently, more than 90 entities have signed up for CRL as ‘responsible lenders’, and soon all microfinance lenders are expected to come forward to endorse and adhere to it.

Significance:

This launch is in line with Sa-Dhan’s objective of furthering responsible finance across entire sector. It is also a significant self-regulatory step across all RBI-regulated entities and others that aim towards safeguarding the interests of low-income customers by enhancing compliance and transparency.

Also, many lenders of diverse legal form are coming on board, as the code engages with all those catering to same microfinance client.

It will bring about a level-playing field for all and ensure that client protection is more adequately addressed.

Month: Current Affairs - September, 2019