Promoting Financial Inclusion - United Nations Development ...

counselling centres have been set up in
various states of the country.
CONSUMER PROTECTION MEASURES... HAVE
A MORE IMMEDIATE IMPACT
Issues related to consumer protection
have been an important discussion point
in the microfinance sector over the last
few years. An issue which directly impacts
microfinance customers is the provision of
multiple loans to a single client by various
MFIs leading to over-indebtedness. Lack
of transparency in the pricing of products
(interest rates) and harsh recovery practices
are other issues. The RBI believes that better
transparency, improved customer awareness
of financial products and the development
of effective grievance redressal systems are
the way forward in ensuring consumer
protection.
Acknowledging these concerns, the RBI
issued a circular in May 2007 [RBI/2006-
07/414] instructing the NBFCs to lay
out appropriate internal principles and
procedures in determining interest rates,
processing and other charges and to share
their actual costs (interest rates and other
charges) with clients on a compulsory basis
in keeping with the Fair Practices Code.
The following are the main features of the
code:
• The loan application forms of NBFCs
should be transparent in disclosing the
rate of interest and should also provide a
comparison with terms and conditions
of other competitor NBFCs to allow
consumers to make informed decisions.
The NBFCs should also devise a system
of acknowledging receipt of all loan
applications.
• The NBFCs should convey in writing
to the borrower through a sanction
letter, the amount of loan sanctioned
and terms and conditions of the loan
including the annualized interest rate.
They should keep a record of acceptance
of the terms and conditions of the loan
by borrowers.
• The NBFCs should give notice to the
borrower of any change in the terms
and conditions including disbursement
schedule, interest rates, service charges
and prepayment charges. Such changes
should only be effected prospectively. A
suitable condition in this regard should
be incorporated in the loan agreement.
NBFCs should also release all securities
on repayment of all dues or on realization
of the outstanding amount of loan
subject to any legitimate right or lien
for any other claim NBFCs have against
the borrower.
• The Board of Directors of NBFCs
should also lay down an appropriate
grievance redressal mechanism within
the organization to resolve disputes
arising in this regard.
A code of conduct has also been
developed for the banking sector. 19 This
has resulted from the RBI initiative in
2005 of setting up of the Banking Codes
and Standards Board of India (BCSBI) in
order to ensure that a comprehensive code
of conduct for fair treatment of customers
was evolved and adhered to. The BSCBI is
registered as a separate society and functions
as an independent and autonomous body.
The BCSBI has evolved two voluntary codes;
the first is a code of commitment setting out
minimum standards of banking practices in
dealing with individual customers, and the
other is a code of commitment to micro
and small enterprises.
The codes are applicable to all products
and services offered by banks or their
branches/subsidiaries including savings
services, payment services, demat accounts,
equity and government bonds, currency
19
BCSBI, August 2009. ‘Code of Bank’s
Commitment to Customers’.
30 PROMOTING FINANCIAL INCLUSION