MFIs to bring out model code

Leading microfinance institutions (MFIs) in the state have come together under one umbrella to bring out a draft model code of conduct in the wake of the controversy that sparked earlier this month leading to the shutting down of some of their offices.

Microfinance organisations in Andhra Pradesh including BASIX and SKS Microfinance met under Sa-Dhan, a leading microfinance association, to develop the draft code of conduct, on Monday.

The draft model code includes the MFIs position on interest rates, working closer with the government self-help group (SHG) programmes, collection methods and transparency. Delhi-based Sa-Dhan represents around 150 microfinance agencies across different regions in the country.

The local administration of Krishna district earlier this month took stern action against two microfinance institutions, Spandana and Share Microfin Limited, that led to the subsequent closure of some of their offices, for using coercive methods to recover loans and charging higher rates of interest.

Explaining some of the features of the draft code of conduct to mediapersons here on Tuesday, Vijay Mahajan, CEO, BASIX, said, "We took into account the various issues about MFIs pointed out by government officials, project directors of Velugu, and bank managers, and have prepared the draft code. But what we are surprised at is that the actions of certain entities, which are not under the scanner of RBI, are also being projected as microfinance."

The MFI image has been tarred and a Rs 1,000-crore credit portfolio in the state has been put at risk, Mahajan said.

According to the model code, MFIs would strive to complement the government-SHG-bank linkage programme, charge reasonable rates of interest as per the RBI regulations (21-24 per cent), comply with the RBI guidelines in terms of collecting savings, adopt ethical loan recovery methods and ensure high standard of governance and transparency.

The representatives from the microfinance industry came down heavily on the way offices of microfinance institutions have been shut overnight and the subsequent cold shouldering of their representations by the government thereafter.

Vijay Akula, CEO of SKS Microfinance, Matthew Titus, executive director, Sa-Dhan and Rama Prabhakar, associate vice-president, BASIX, were present.

Stating that the microfinance movement had contributed a lot in terms of social development and infrastructure, they termed the shutting down of offices at the hint of a suspicion as irresponsible.