OBJECTIVES OF THE POLICY
- Develop a comprehensive Fair Practices Code to adopt guidelines provided by the regulator, self-regulatory organizations and global standards of client protection principles.
- Formulate operating guidelines for implementation of Fair Practices Code in an effective manner.
- Disseminate the policy guidelines in an effective manner to all stake holders in general and to customers & employees of Belstar in particular.
- Review & reinforcement mechanism to ensure high level of adherence to Fair Practices Code.
- Mechanism for constantly receiving feedback/grievances from customers in order to improve the implementation of Fair Practices Code.
I. Application for loans and their processing
- All communications to the borrower shall be in the vernacular language or a language as understood by the borrower
- All Loan Application Forms include the necessary information which affects the interest of the borrowers, so that the borrower can make a meaningful comparison with the terms and conditions offered by other MFIs and it will help them to take proper decision.
- The required documents to be submitted are listed clearly in the Loan Application Form.
- An acknowledgement for receipt of all loan application documents will be provided to all applicants along with the time frame within which the Loan applications will be disposed off given to the borrower.
II. Loan appraisal and terms/conditions
III. Disbursement of loans including changes in terms and conditions
- The Company shall give notice to the borrower in the vernacular language as understood by the borrower for any change in the terms and conditions including repayment schedule, interest rates, service charges, prepayment charges etc.
- The company shall ensure that changes in interest rates and charges are effected only prospectively. A suitable condition in this regard will be incorporated in the loan agreement.
- The decision to recall / accelerate payment or performance under the agreement should be in consonance with the loan agreement.
- All sanctioning and disbursement of loans will be done only at branch premises - and more than one individual will be involved in these functions. In addition, there shall be close supervision of the disbursement of loans.
IV. Responsibility of Board of Directors
The Board of Directors of Company should also lay down the appropriate grievance redressal mechanism within the organization. Such a mechanism should ensure that all disputes arising out of the decisions of lending institutions' functionaries are heard and disposed of at least at the next higher level. The Board of Directors should also provide for periodical review of the compliance of the Fair Practices Code (adopted from sector associations -MFIN and Sa_Dhan) and the functioning of the grievances redressal mechanism at various levels of management. A consolidated report of such reviews may be submitted to the Board at regular intervals, as may be prescribed by it.
V. Regulation of Interest
- The Board of the Company shall adopt an interest rate model taking into account relevant factors such as cost of funds, margin and risk premium and determine the rate of interest to be charged for loans and advances. The rate of interest and the approach for gradations of risk and rationale for charging different rate of interest to different categories of borrowers shall be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter.
- The rates of interest and the approach for gradation of risks shall also be made available on the web-site of the companies or published in the relevant newspapers. The information published in the website or otherwise published should be updated whenever there is a change in the rates of interest.
- The effective rate of interest charged on each loan product, fees and other charges should be prominently displayed in all branches, regional & head office and in the literature issued (in vernacular language) and on website.
- The rate of interest should be annualised rate so that the borrower is aware of the exact rates that would be charged to the account
- The Company shall refrain from interference in the affairs of the members for the purposes provided in the terms and conditions of the loan agreement (unless new information, not earlier disclosed by the member, has come to the notice of the Company)
- The FPC in vernacular language shall be displayed by an NBFC-MFI in its office and branch premises
- A statement shall be made in vernacular language and displayed in their premises and in loan cards articulating their commitment to transparency and fair lending practices ,
- Field staff shall be trained to make necessary enquiries with regard to existing debt of the borrowers,
- Training if any, offered to the borrowers shall be free of cost. Field staff shall be trained to offer such training and also make the borrowers fully aware of the procedure and systems related to loan / other products,
- A declaration that the Company will be accountable for preventing inappropriate staff behaviour and timely grievance redressal shall be made in the loan agreement and also in the FPC displayed in its office/branch premises,
- The KYC Guidelines of RBI shall be complied with. Due diligence shall be carried out to ensure the repayment capacity of the borrowers,
VII.Disclosures in Loan Agreement / Loan card
- The Company shall have a Board approved, standard form of loan agreement. The loan agreement shall preferably be in vernacular language.
- In the loan agreement the following shall be disclosed:
- all the terms and conditions of the loan,
- that the pricing of the loan involves only three components viz; the interest charge, the processing charge and the insurance premium (which includes the administrative charges in respect thereof)
- that there will be no penalty charged on delayed payment,
- that no Security Deposit / Margin is being collected from the borrower,
- that the borrower cannot be a member of more than one SHG / JLG,
- the moratorium period between the grant of the loan and the due date of the repayment of the first instalment(as guided by the NBFC-MFIs(Reserve Bank) Directions, 2011),
- an assurance that the privacy of borrower data will be respected.
- The loan card should reflect the following details as specified in the Non-Banking Financial Company - Micro Finance Institutions (Reserve
Bank) Directions, 2011
- the effective rate of interest charged,
- all other terms and conditions attached to the loan,
- information which adequately identifies the borrower and acknowledgements by the Company of all repayments including instalments received and the final discharge,
- The loan card should prominently mention the grievance redressal system set up by the Company and also the name and contact number of the nodal officer,
- Non-credit products issued shall be with full consent of the borrowers and fee structure shall be communicated in the loan card itself,
- All entries in the Loan Card should be in the vernacular language.
VIII. Non-Coercive Methods of Recovery
As specified in the NBFC-MFIs (Reserve Bank) Directions, 2011, recovery should normally be made only at the Branch . Field staff shall be allowed to make recovery at the place of residence or work of the borrower only if borrower fails to appear at branch place on two or more successive occasions.
The following precautions need to be followed
- The Company shall ensure that a Board approved policy is in place with regard to Code of Conduct by field staff and systems for their recruitment, training and supervision.
- The Code should lay down minimum qualifications necessary for the field staff and shall have necessary training tools identified for them to deal with the customers. Training to field staff shall include programs to inculcate appropriate behaviour towards borrowers without adopting any abusive or coercive debt collection / recovery practices.
- Compensation methods for staff should have more emphasis on areas of service and borrower satisfaction than merely the number of loans mobilized and the rate of recovery. Penalties may also be imposed in cases of non-compliance by field staff with the Code of conduct.
- Generally, only employees and not out sourced recovery agents be used for recovery in sensitive areas maintain decency and should not resort to undue harassment viz; persistently bothering the borrowers at odd hours, use muscle power for recovery of loans etc.
IX.Internal control system
As the primary responsibility for compliance with the FPC rests with the Company, they shall make necessary organizational arrangements to assign responsibility for compliance to designated individuals within the company and establish systems of internal control including audit and periodic inspection to ensure the same.