Report

of the

Round Table on Responsible Financial Inclusion and Lending

19 March 2010
New Delhi
Preface

This document reports on the proceedings of the Round Table on Responsible Financial Inclusion
and Lending organized by the Michael & Susan Dell Foundation (MSDF) and EDA Rural Systems in
New Delhi on March 19th, 2010. It brought together key stakeholders in the microfinance industry to
review current risks in Indian microfinance, and aimed to begin a process of working together as an
industry to build an inclusive and responsible microfinance sector.

The Round Table was highly discussion oriented; with individual presentations by key members of
the industry which highlighted current concerns and emerging initiatives; and the different roles that
need to be played by networks, lenders, and TA providers if the sector is to move towards
establishing and showcasing itself as a double‐ and triple‐ bottom line industry.

The organizers wish to thank all the participants for their valuable input. We welcome further
feedback and look forward to the ‘next phase’ of microfinance as an established means of
responsible financial inclusion and lending. It is an ambitious undertaking, and the Round Table was
an initial step towards this goal.

Michael & Susan Dell Foundation EDA Rural Systems

Geeta Goel Frances Sinha
Rajiv Chegu Ragini Bajaj Choudhury
Srikrishna KR Komal Parmar Rana
Urvashi Prasad

i
Contents

Preface i
Summary v
Participants vi
1 Objectives of the Round Table 1
2 Microfinance in India: A Sector Perspective 2
3 Social Performance Reporting in Microfinance 4
4 Warning Signals: Kolar ‐ and elsewhere? 6
5 Emerging initiatives – networks, lenders 8
6 Planning next steps 11
Annex: Social performance framework – elements and tools 12
Summary

The Round Table sought to begin the process of answering the following questions:

• Have scale and commercial viability in microfinance taken precedence over “clients’
interest”? How do we ensure and balance client focus?

• Does Indian microfinance today truly qualify as a double bottom line industry? Does
it warrant concessions and less regulation? If so, how do we showcase this?

• As responsible stakeholders can we avoid different reporting metrics and formats to

different lenders, networks and investors?

The Michael & Susan Dell Foundation and EDA Rural Systems invited a group of around 35 people
from within the Indian microfinance sector, representing lenders, investors, practitioners, networks,
and TA providers to initiate discussions on establishing the way forward on addressing the above
questions.

The primary purpose of this roundtable was twofold:

(i) to gain an understanding of existing different initiatives in India on the social performance
front, as well as
(ii) to establish a representative body that would discuss the relevance of these initiatives and
agree on an action plan for adoption of an agreed set of metrics and the reporting on these
metrics by Indian MFIs as the basis for the interface with regulatory and other bodies.

The starting point for the discussions was a review of the work already done internationally (by the
Social Performance Task Force and the MiX) to develop a common set of social performance metrics,
with different initiatives around consumer protection, microfinance transparency, poverty
assessment and social rating directly aligned within the same framework for understanding different
aspects of social performance.

The discussions covered a range of issues that revolved around:

• The relatively high growth of the microfinance industry in India
• Evidence of MFI competition
• Multiple lending and over‐indebtedness in southern Karnataka and elsewhere
• Key risks and concerns that have been heard from regulators
• Current developments towards self regulation within the sector

As part of the wrap up, there was agreement that the sector should try to move towards a uniform
and standardized approach on reporting on responsible lending, so as to develop benchmarks and
robust evidence for responsible financial inclusion in Indian microfinance. It was suggested that
India needs core task force of its own, which can gain consensus on key indicators from networks,
apex agencies, and key lenders. EDA was proposed to be the “core agency” which would facilitate
the development of social performance metrics for this taskforce, building upon the existing
international work. The taskforce will work through the networks in the adoption of these metrics,
and enable any Technical Assistance support as relevant and required.

V
Participants in the Round Table
Type of Institution (#) Organization Name Designation
Microfinance Arohan Rabin Das General Manager
Practitioners (10) BASIX Vijay Mahajan Founder and Chairman
BASIX Rama K Group Vice President (OB)
( 12 Participants) Grama Vidiyal Arjun Muralidharan Senior VP
Grameen Koota Suresh Krishna Chief Executive Officer
Samhita Praseeda Kunam Chief Executive Officer
SKS Mamta Bharadwaj Relations manager
Sonata Abhay Singh DVP ‐ Training
Sonata Brahmanand DVP ‐ Accounts
SPANDANA Nitin Agarwal Manager (Risk)
Swadhaar Veena Mankar Managing Director
Janalakshmi Radhakrishnan V. S. Chief Executive Officer
Investors (2) Caspian Luv Jhangimal Associate, Investor Relations
Caspian Mona Kachhwaha Director, Investments
(5 Participants) Caspian R. Venkatram Reddy Principal, Investments
Unitus Capital Eric Savage President
Unitus (Non‐Profit) Rahul Badki Manager, Advisory Services
Banks (2) Citigroup Alok Prasad Global Head, Microfinance
Standard Chartered Gauri Shankar Global Head, Microfinance
Networks (6) ACCESS Brij Mohan Chairman
ACCESS Vipin Sharma Managing Director
ACCION International Robin Ratcliffe Director, The Smart
(9 Participants) Campaign, Center for
Financial Inclusion, ACCION
International
ACCION International Siddhartha Chowdhury Country Manager, India
FWWB Pinaki Mitra Regional Manager, Credit
(Basix, Grameen Koota –
M‐FIN listed above)
Sa‐Dhan Achala Savyasachi Vice President
Sa‐Dhan Prabhakara.S. Manager, Sector
representation & policy
advocacy
Sa‐Dhan Thomas Mehwald Manager
World Bank Niraj Verma Senior Financial Specialist
Technical Assistance/ Grameen Foundation Chandni Ohri Manager, South Asia
Support/rating (5 ) Intellecap Anand B. Engagement Manager
Intellecap Richa Jain Senior Associate
(6 Participants) M‐CRIL Sanjay Sinha Managing Director
Microsave Matt Leonard Analyst ‐ South
Consultant N. Srinivasan Independent Consultant
Institutions: 25 (excluding MSDF and EDA)
Participants: 34 “
vi
 1
Objectives of the Round Table

[Michael and Susan Dell Foundation, EDA]

____________________________________________________________
Adopting a uniform, considered approach to Responsible Finance in India.

As the microfinance sector (in India and internationally) reaches new heights in terms of outreach,
growth rates, and begins to attract mainstream capital, it is important to demonstrate with robust,
objective, and comparable data the double bottom line of the industry. This becomes increasingly
relevant in the current context when concerns are being raised on the increasing incidence of
multiple borrowing coupled with high levels of profitability and valuations of Microfinance
Institutions (MFIs). The same concerns are being voiced in India by several important stakeholders.

The international movement in the Social Performance (SP) space seeks to address these issues and
there has been significant development in the process of identifying tools to measure poverty
outreach, transparency, and adherence to mission among others. There are clear advantages in
building upon the international social performance work and tailoring it to the Indian microfinance
sector, and to begin the process of driving the adoption of these tools by Indian MFIs in order
effectively to address existing concerns and potential future ones, as well as to move towards the
active management of social performance to ultimately serve our clients better.

Some of the industry efforts that have gathered momentum include a set of SP metrics for reporting
to the MIX, poverty assessment tools (by the Grameen Foundation and IRIS), the SMART campaign
for client protection (Accion–Centre for Financial Inclusion), integrating SP into policies, planning and
procedures (Imp‐Act consortium, EDA, MicroSave), social rating (M‐CRIL and the specialist rating
agencies) and social audits (CERISE). Social Investors (such as Unitus, Dia Vikas Capital) are beginning
to build these tools into their investment partnerships with MFIs. This is by no means an all inclusive
list of all efforts, but only indicates the extent of interest that has been generated and the
importance of making the appropriate selection of metrics and tools by the industry/networks/
MFIs. These metrics will become relevant only if we can objectively compare and benchmark data
across different MFIs or clusters, which in turn require a critical mass of MFIs to begin reporting on
the metrics.

Placing these developments in the context of the Indian microfinance industry, we believe it is
important for various stakeholders to discuss the relevance of some of these initiatives to India, and
agree on common tools that are relevant to the Indian market, both from the perspective of the MF
clients in India and also the concerns and matters of critical importance to the policy makers. This
becomes even more relevant considering some of the ground realities and reputation risk that
emerged in AP in 2006, and have been repeated in southern Karnataka in early 2009. These issues
are emerging elsewhere in India – and other countries – and are an indication of the value of
incorporating principles of social performance as a sector.

This was our invitation to the Round Table to key stakeholders in the Indian microfinance sector with
the aim to:
⇒ Kick start the process towards building uniform standards and metrics for “responsible finance”
⇒ Review current developments and concerns in Indian microfinance
⇒ Understand what different initiatives are doing and how they can ‘fit’ together.

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 2
Microfinance in India: A Sector Perspective
[Brij Mohan, Access/M‐CRIL; Vijay Mahajan, Basix/MFIN]
___________________________________________________________
Issues facing the sector and the need for responsible practices

Recent negative publicity, even of a few MFIs, is affecting the entire microfinance sector in
India. As the sector expands, there are emerging issues in managing competition,
providing relevant services for financial inclusion, and providing those services in a
responsible way. It is time to introspect – and not lose the hard work of the past ten years
in building microfinance.

Both Brij Mohan and Vijay highlighted the current concerns, and identified some core
questions.

Adverse publicity
There are significant concerns around the recent rapid growth of microfinance in India. Do the
increasing numbers of microfinance clients mean that poor people are benefiting from financial
inclusion? Hard evidence of the fact remains to be seen. What we do have is the glare of adverse
publicity in the media which has picked up on “MFIs as the modern day gold‐diggers of Kolar”. This
was on the front page of the national daily the Economic Times on 8 March, just eleven days before
the Round Table (nine days before the recently held Sa‐Dhan conference on ‘Responsible and
Inclusive Microfinance’). Even if it is a few MFIs that are stoking the adverse publicity, this is what
the media highlights, and it can trigger a political backlash, leading to increasing control by the
regulators. There are lessons here for the sector. We must address these concerns. As Vijay
emphasised, the sector is beginning to lose the respect of the young.

Current growth rates are not sustainable – nor do they represent a client‐focused approach
Mr Brij Mohan commented on the high rates of expansion by MFIs that have become quite
common‐place: even start‐ups quickly move to half a million clients. This is neither sustainable, nor
responsible, when it leads to aggressive competition between MFIs and cases of multiple lending in
the same areas to the same clients. Aggressively rapid growth is
partially the result of rolling out a single type of product. Large
numbers of microfinance clients with a single standard type of
product indicates a gap in understanding the market. Growth
needs to be in response to a genuine understanding of different
market demands for microfinance services.

The entry of private equity and investors (both social and commercial)
looking for relatively short term returns, has contributed to the push
for growth. Rapid and aggressive expansion is undermining the sector
and is not sustainable.

2
 Profit for whom?
Vijay highlighted three questions that have been raised at
the Ministry of Finance:

1 Interest rates – what are the costs to clients? Is the

interest rate level compatible with Priority Sector
Lending? With economies of scale reducing the costs
to MFIs, is this being passed on in reduced charges to
clients? MFIs need to announce when they bring
down the interest rates to clients.

2 Advent of private equity – It has become essential to

the growth of the top 10 MFIs – does it lead to
‘supernormal profits’? What is a ‘normal’ level of
profit?

3 Governance – particularly the level of CEO salaries is under the spotlight, when there is talk of
some MFI CEOs earning more than the heads of the largest private banks. Also there are
questions about the Mutual Benefit Trusts of clients – do they genuinely support client
ownership of the MFIs and a share in the profits?

Bridging the transparency deficit

Mr Brij Mohan emphasised the need to capture the good that is happening in microfinance.
Transparency at all levels will help to counter the examples of disrepute. MFIs now regularly report
on their growth and portfolio figures. The social reporting is missing. MFIs need to respond to the
questions being asked and regularly report on their social performance. There should ideally be a
set of core indicators that are mandatory for reporting in microfinance. Some MFIs are beginning to
report on social performance indicators.

Some MFIs are reporting the change that takes place for their clients – based on a small sample,
capturing the client profile at entry and following up after 3‐5 years. An example is the CASHPOR
study conducted in 2009 with support from ABN‐AMRO Bank. If this could be replicated across MFIs
and the findings verified as part of social performance reporting, that would provide sector wide
evidence of what microfinance can achieve.

Social and Environmental

Let the double bottom line be at the heart of microfinance. Vijay emphasised this as the triple
bottom line. Although ‘social’ performance does include environmental responsibility, it is necessary
to state this. He highlighted the fact that there can be adverse environmental effects contributing to
climate change, from even the micro‐enterprises that are financed with micro‐credit, MFIs can think
of ways to mitigate such effects. One example, related to dairying, is to promote biogas plants (that
would reduce methane emissions from dung used as fuel, at the same time as reducing dependence
on wood and other conventional fuels).

3
 3
Social Performance Reporting in Microfinance
[Frances Sinha, EDA/Social Performance Task Force]
____________________________________________________________
Building on the work that is already there

A number of social performance initiatives are now developing globally. These include
reporting metrics, rating and management systems for a triple bottom line microfinance
sector.

Various initiatives support the different dimensions of social performance, and Indian
microfinance can benefit from these and get more involved.

The Social Performance Task Force

When the Nobel Peace Prize was awarded to Mohammed Yunus and the Grameen Bank of
Bangladesh in 2006, questions were already being asked about whether microfinance was living up
to its promise of serving poor people effectively? Some impact assessments had been carried out at
considerable cost, but with complex, even inconclusive, results (arguably this is the nature of impact
assessment). The alternatives available were in anecdotal stories (and photographs) that could be
very positive, or the reverse – and remain anecdotal; or in the use of financial indicators as proxies
for social returns: growth of
portfolio (to reflect financial
access), small average loan size (to Social Performance is defined as the effective
reflect poverty outreach) and high translation of mission into practice, in line with
repayment rates (to reflect accepted social values, which include:
appropriate products). Some ⇒ serving poor/low income, excluded people,
⇒ improving the quality and appropriateness of
stakeholders in the industry were
services,
already looking for more ⇒ supporting enterprise and employment,
meaningful indicators and this ⇒ improving the economic and social conditions of
search is even more relevant today clients, and
when there are questions about ⇒ being socially responsible to: clients, staff,
how growth is managed, community and environment.
governance and client protection. This definition is important because it reflects
agreement on values in microfinance, whatever the
In 2005, the Social Performance delivery model. It reflects goals of inclusive and
Task Force (SPTF) brought together responsible finance.
key representatives of the global
microfinance industry. The Putting values into practice Implies: look at governance
and management processes, as well as client level
mandate was to build consensus
results.
on social values in microfinance,
and to coordinate initiatives
around these common values. The definition of social performance (see Box) includes core values

4
that apply to all models of microfinance, and underlie contemporary concerns for inclusive and
responsible finance.

The work of the SPTF has led to the development of a conceptual framework that covers multiple
aspects of social performance: not restricted to client level results (outreach, effective services) but
the organisational systems that need to be in place to achieve those results (related to governance
and management systems).

The Annex presents the social performance framework along its different dimensions, showing how
current initiatives and tools – for example, the SMART campaign for client protection, Microfinance
Transparency, the Progress out of Poverty Index – fit and relate to one another.

Social Metrics, a systematic process of development

The social performance framework is the basis for the development of social performance reporting
metrics that were introduced by the MiX in 2009. These metrics have been developed through a
systematic and participatory process beginning in 2007. The process involved engagement with
other reporting systems (such as the Global Reporting Initiative – GRI as applied to the financial
services sector) as well as metrics under development for social rating by the specialist rating
agencies.

An initial questionnaire was prepared and reviewed in 2007 by SPTF members, and the revised
questionnaire was piloted with 57 MFIs during 2007/8. Based on the pilot, the MiX introduced a set
of Social Performance Reporting Standards during 2009. Over 200 MFIs reported on these standards
to the MIX in 2009. There were only eleven MFIs who reported from India. (In comparison 10 MFIs
reported from Pakistan, largely through the support of the Pakistan Microfinance Network).

Practical and meaningful indicators

The discussion highlighted the following:

• The available indicators are useful for external reporting. Even more important is their
relevance for internal reflection and application by an MFI. I.e. this should be not just a
‘reporting requirement’ for ticking the boxes, but a serious process that is taken up within the
management process, with full understanding of implications for the MFI within its context.

• As for financial reporting, social reporting will become cost‐effective when data reports can be
regularly generated.

• Social metrics include HR issues, such as training and incentives relevant to ethnical business
practices

• Tracking the client household profile at entry (new clients) shows which markets the MFI is
serving and also provides a baseline for tracking change after 3 or 5 years (as a substitute for
impact assessment).

• There are cost implications for MFIs – staff time, adapting the MIS. Will MFIs pay for this? Why
should profitable MFIs not pay?

5
 4
Warning Signals: Kolar and elsewhere
[Sanjay Sinha, M‐CRIL/EDA and N. Srinivasan, Author, State of the Sector Report]
___________________________________________________________
The high rate of non‐repayment of micro‐credit loans in four urban districts in Southern
Karnataka in early 2009 is a warning signal for Indian microfinance. Similar warnings are
beginning to be heard in other parts of India.

A study commissioned by AKMI (Association of Karnataka MFIs) from EDA and CGAP reveals
the downsides of MFI expansion. The State of the Sector Report in 2009 also reflected on
the implications for Indian microfinance.

Rapid expansion of microfinance, with inadequate systems

Mass defaults occurred one after the other in the towns of Kolar, Sidlaghatta, Ramnagaram and
Mysore, from February up to May 2009. The Muslim community was involved in all these areas. The
EDA/C‐GAP survey and the IFMR study covered in the State of the Sector Report reveal that the
issues lie less in religion and more in aggressive microfinance expansion practices:

• There is multiple lending (clients with more than one loan from different MFIs) for at least 14%
of clients, in these and other areas (and probably more, since not all the MFIs have shared their
data); multiple lending in itself may not be a problem but the risk lies in MFIs lending beyond a
customer’s capacity, whether to service the overall loan or to manage the weekly repayment
installments.

• Over‐indebtedness of a few was the trigger leading to delinquency; loan liabilities of Rs30,000‐
50,000 from multiple borrowing, even by a few members, breaks the earlier norms of collective
group liability in case some members cannot make their repayments.

• MFIs have given their staff high loan disbursement

targets and at the same time look for full repayment
of loans. If clients cannot pay the installment, staff put
pressure on the group as part of a culture of ‘zero
tolerance of delinquency’. A rule of ‘no‐refinancing or
rescheduling of repayment’ compounds the problem,
leading to collection practices that put the reputation
of MFIs at risk

• The root cause lies in the drive for rapid growth in

microfinance, with MFIs expanding in the same areas
and serving the same clients (the “low hanging fruit”
easy to serve, especially if already trained by another
MFI); in south Karnataka, intense competition

6
 between MFIs and multiple lending created an environment of “easy money” leading to
“tinderbox” conditions.

• Ambitions for growth were not matched by adequate systems, including training staff (trainees
should not be training trainees), attention to the MIS, comprehensive control systems, and
tracking client feedback and adequacy of products.

• With coverage of around 20 million clients, MFIs can make an important contribution to financial
inclusion. But responsible financial inclusion needs controlled growth with adherence to social
mission and values. Not the pursuit of quick profits and short‐term share valuations.

What MFIs can (and should) do

N. Srinivasan talked of lending rather than “dumping”. Sanjay emphasised the need for “relationship
lending”. What they are referring to includes:

• At the product level, MFIs need to review their loan sizes: to finance customers adequately
(avoiding the need for multiple lending), fitting the product to household income flows; and
ensuring that the loan appraisal includes information on extent and sources of existing debt,
and repayment instalment loads; study the behavioural side of
borrowing to identify ‘aspirational loan limits’ meaning

• At the institutional level, MFIs need

− a policy in place on branch location and business expansion in

‘super‐heated’ areas, including independent audit and
portfolio review systems for competitive locations

− a sound MIS and intelligence that encourages information

(including bad news) to flow upwards;

− to have credit manuals in the local language, emphasizing key issues in loan size and credit
appraisal

− to avoid having local agents to push credit,

− to revisit staff incentives (that currently emphasise growth and repayments); building
microfinance as a “service” sector, with sensitivity to local cultural factors

− rescheduling of loans as a legitimate part of a financial institution’s work, depending on

having clear information about the circumstances

− recovery policies that are realistic (100% may not be)

• At the industry level, MFI exchange of ‘hot‐loan’ lists till credit bureaus become functional,
positive information (all loans not just delinquent loans) sharing through credit bureaus; a code
of conduct especially for fair competition and enforcement against wayward conduct; and a
customer education initiative as an industry campaign, to build customer expectations.

7
 5
Emerging Initiatives ‐ Networks/Lenders
[Robin Ratcliffe, the SMART campaign; Achala Savayasachi, Sa‐Dhan; Vijay Mahajan, MFIN
Niraj Verma, the World Bank]
_______________________________________________________________________________

At the International level, the SMART campaign has worked to define core principles of client
protection. Within India, Sa‐Dhan and MFIN are working to develop a code of conduct for
their members. And the World Bank has initiated a lenders’ forum with SIDBI and other
Banks.

What has been developed so far? Can we move towards one code for the sector? What will
be the mechanisms for implementation, monitoring and reporting?

The SMART Campaign – client centred microfinance

The SMART Campaign is a global industry wide effort at awareness raising and implementation
aiming for microfinance to:
‐ Put the interests of clients first
‐ Provide transparent, respectful and prudent financial
services, and How does the Campaign Work?
‐ Distinguish microfinance as leader in responsible
finance Communications and Outreach
‐ Endorsements, partnerships,
There are six client protection principles: working with networks and
(1) Avoid over‐indebtedness investors
(2) Transparent and responsible pricing
(3) appropriate collections practices, Research & Development of Tools
(4) Ethical staff behavior ‐ Assessments, Workshops,
(5) Mechanisms for redress of client grievances Training, Toolkits, Smart notes
(6) Privacy of client data.
Evolution of Principles & certification
‐ Steering committee/task forces
The SMART Campaign is already linked into the Social
Performance Task Force, including indicators on the six
principles as part of SP reporting to the MiX. The
campaign is also working specialised microfinance raters (such as M‐CRIL), regional networks and
country associations.
With a dedicated team in India, the campaign aims to
establish network partnerships (MFIN, Access Alliance, Sa‐
Dhan and SIDBI), to undertake assessments with EDA/M‐
CRIL and other partners and conduct workshops, webinars
and training. Two representatives from India are on the
Advisory Board of the SMART campaign: Vipin Sharma of
Access Indiam, and Samit Ghosh of Ujjivan (MFIN). Robin
underlined the role of Networks and Associations, to:
endorse the campaign, incorporate the client protection
principles into implementation, underwrite and conduct
client education, help develop certification tools and processes, and use this as a basis for interfacing
with regulators.

8
Sa‐Dhan (member of the global SPTF) – code of conduct and reporting
As the leading network of MFIs and community development finance institutions in India, Sa‐Dhan is
concerned about the growing
evidence of multiple lending, and the
Sa‐Dhan
need to promote dialogue and
ethical standards in the sector. Association of Community Development Finance
Institutions
In 2007, Sa‐Dhan went through a
participatory process with its Established: 1999
members to evolve a code of Members: 234 Members with diversified legal forms
conduct in microfinance. The code (NBFCs, Sec 25 Companies, Trusts, Societies, Companies,
drew on various codes that were LAB, Co‐operatives & Banks) and different delivery
then under development and models( SHG, JLG and individual),smaller networks, ands
emerged as one of the first national support institutions (Capacity Building Organisations,
codes. However, although the Technical Service Providers, Bulk Lenders, SHG promoting
Boards of MFI members may have organizations) Rating Agencies etc.
endorsed the code, this did not lead
to implementation. Implementation Activities: Policy advocacy, sector representation through
interface with government, regulators and other
requires follow up through effective
stakeholders, conferences, evolving financial and non‐
governance and management within financial standards including Code of Conduct,
the organisation, and external implementation of Code Conduct among its membership,
enforcement and reporting. advisory services, capacity building through workshops
and training, collecting and reporting on data of MFIs
The Sa‐Dhan code of conduct has through its ‘Bharat Microfinance Reports etc.
been reviewed in 2010, and Sa‐Dhan
is now building in an enforcement Currently Sa‐Dhan works through three task forces of
mechanism, with reporting membership, (1) NBFC (for profit), (2) Not for profit and
indicators to monitor (3) SHG. The three thematic teams: (1) Sector
Representation and Policy Advocacy, (2) Member
implementation and setting up a
Development and Standards and (3) Research and
complaint redressal mechanism. Communication within Sa‐Dhan take up the issues from
the above mentioned three task forces.
In the Bharat Microfinance Report,
recently released at the
Microfinance Summit (held just before this Round Table) Sa‐Dhan presented the SocIal Performance
Standards for reporting to the MiX. The report argues for the relevance of the main indicators to
Indian microfinance and Sa‐Dhan is requesting its members to use the MiX format for reporting for
2009‐2010.

Achala emphasised that all players need to coordinate to enforce a code of conduct: networks,
bankers, investors [rating and TA providers]. Client education also has to be part of the effort, so
that customers too are informed.

MFIN ‐ Microfinance institutions Network

MFIN is the response of NBFC (non banking financial company) MFIs in the country to concerns of
overborrowing by clients and unregulated credit practices in the microfinance sector. The network is
intended to develop as a self‐regulatory organisation that aims to work with regulators to promote
microfinance to achieve larger financial inclusion goals. Recently established in December 2009,
MFIN members collectively represent almost 80 per cent of the MFI sector in the country.

MFIN is developing a code of conduct, which in addition to the regulatory coverage of the RBI (which
covers all NBFCs), focuses on fair practices with borrowers including promoting transparency, fixing

9
overall lending limits at client level (maximum three loans, and Rs50,000), data sharing (including a
credit bureau to be established) and recruitment practices. There is considerable attention being
paid to the need for an effective enforcement mechanism, including ‘whistle blowing ‘ through
written complaint to a 3‐member enforcement committee, followed by investigation, a cascading set
of warnings and penalties.

MFIN’s approach may include 6‐monthly meetings with Bankers, and field visits for members of the
press, in different regions.

The World Bank

The World Bank is also seeking to respond to the real risks in the sector, by working with SIDBI and
other banks, recognising the role that lenders can play in microfinance (‘lenders affect lenders’). Key
concerns relate to:
⇒ Developing a single code of conduct
⇒ Implementing such a code
⇒ Controlling growth, and
⇒ Coordinating information.

Niraj Verma mentioned the possibility of setting up a ‘MiX India’ to coordinate data collection, in
place of the dispersed set of publications currently produced. And the potential use of ‘heat maps’
to track areas that have high numbers of MFI clients relative to local population.

• The discussion and questions included:General agreement on the need for a standard code.
Vipin (Access India, a support network with 130 members, and already part of the Smart
Campaign) emphasised a “Client First” approach, the role for a single code to inform how
microfinance works as a sector in India, and the need to put financial and human resources into
the effort. Eric Savage (Unitus) also supported the approach, underlining the need for appraisal
and reporting.

• A code of conduct relates to all levels of microfinance from relations with clients to
accountability at the governance level. It is essential to get the code of conduct ‘sweeping
down’ the organisation.

• The SMART campaign has developed a process tool for individual lending. This needs to be done
for group lending.

• At MFI level, there may be a process to assess credit absorption capacity for individual clients.
Does this need to be developed for group level clients? How can this be done? What are the
skills required at field staff level?

• Engaging with the lenders has to be part of the strategy, to monitor and enforce.

• Managing growth with a client focus has implications for productivity and profitability.

• What is a reasonable expectation of financial returns from investing in microfinance? How are
profits allocated? (a financial indicator with a social/responsibility value).

• Is there a concern to serve poor people or is the poverty outreach goal of microfinance being
superceded by the current emphasis on client protection?

10
 6
Planning Next Steps
_______________________________________________________

Following on the preceding The starting point today

discussions, with substantial
agreement on the concerns facing
the Indian microfinance sector, and
some consensus on the scope to What is Indian Use synergies
take the issues forward with a already there microfinance • Networks
uniform approach to a code of • Understand • Adapt • Banks
conduct and supporting metrics, • Build on it • Build buy in • Investors
Geeta Goel (MSDF) concluded the • Rating
Round Table with a proposal to set agency
up a working group to take the • TA providers
initiative forward.

The objectives of this working group are to:

• Consolidate feedback from this roundtable on key thematic areas of responsible finance,
and from practitioners that have rolled out existing tools and metrics
• Draft a set of metrics for the Indian MF sector which is practical, systematic and comparable,
and aligned with international initiatives
• Build consensus with different stakeholders
• Present to the RBI
• Prepare for the roll‐out of metrics with TA and other support, and plans for verification and
validation

The composition of the working group is yet to be finalized, but it is expected that the networks and
apex institutions will play a key role in a core group, liaising with the wider group of other
stakeholders. EDA will play the pivotal role of providing a technical lead and developing the action
plan, building upon the experience with responsible lending and social performance in India.

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ANNEX

Social Performance Framework – ELEMENTS & TOOLS

Intent Internal Outputs Outcomes Impact

systems/activities

[‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ PROCESS‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ ‐ ‐ ‐‐ ] [‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ RESULTS ‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐]

Policies & Achievement of
Strategy social goals
Compliance
Business Market research for SMART campaign – client
planning product development, Outputs – Outreach
protection PPI/PAT – client households
client satisfaction, exit
surveys at entry
Microfinance Transparency
– costs to clients Client profiling – market
Staff training, appraisal segments/excluded ;
and incentives HR policy/manual employment – self/hired –
‘baseline’ data
MIS tracking – outreach to FMO – Health, Safety and
target areas and clients; Environment check
retention, dropout, Outputs – Outreach/outcomes
product access, gender PPI/PAT – client households
disaggregation after 3/5 years
Tracking other profile
indicators – over time
Client exit rate (dropout or
graduation?)

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