Third Party Evaluation Report of Chaitanya India Fin Credit Pvt. Ltd. TPE report... · 2017-12-31 · Micro Credit Rating International Ltd. (M-CRIL) has been empaneled as one of

Third Party Evaluation Report

of Chaitanya India Fin Credit Pvt. Ltd.

conducted by

Micro-Credit Ratings International Limited

From 6th to 10th June 2016

Report issued on:

Team Composition: Name: Sana Zehra Email: [email protected] Name: Mrinalini Bhargava Email: [email protected] Contact no: + 91 124 491 1939, 491 1942

mailto:[email protected]

mailto:[email protected]

Glossary

Key Ratios Definition/Formula

Average loan size Total loan amount disbursed in the period / Number of disbursed loans.

Debt to Equity Ratio This indicates how much debt a company is using to finance its assets relative to the amount of value represented in shareholders' equity.

Operating Expense Ratio It is the indicator of the overall efficiency of a lending institution and it measures the institutional cost of delivering loan services.

Portfolio at risk (PAR (>30days)

The principal balance outstanding on all loans with overdue greater than or equal to 30 days /Total loans outstanding on a given date.

Return on Assets This measures the net income earned on the assets of a Microfinance Institutions (MFI)

Return on Equity It is the net income earned on the equity of a Microfinance Institution (MFI).

Table of Contents

Chapter Page

Snapshot of the overall compliance Score Card i

About MFIN and Third Party Evaluation ii

I Executive Summary

1 Introduction 1 2 Methodology 1 3 Results and Findings 1 4 Opinions 1 5 Recommendations 2 6 Acknowledgements 2

II Detailed Report 1 Introduction 3 2 Objective and Scope 5 3 Methodology 5 4 Validation of Industry Compliance Index Score 8 5 Evaluation of CB & KYC Standards Compliance 10 6 Sections on any other evaluation parameters 11 7 Good Practices 12 8 Observations 13 9 Recommendations & Suggestions 15

1 2 3 4 5 6

Annexures Annexure 1 – Detailed Compliance Score Card Annexure 2 – Details of Outbound Calls Annexure 3 – Details of Household Visits Annexure 4 – Observation Memo Annexure 5 – Relevant indexed evidences Annexure 6 – Questionnaires implemented

16 48 50 52 56 63

i

Snapshot of the overall compliance Score Card (Validated v/s Self-Reported Score) The Industry Compliance Index has been developed by MFIN as part of its surveillance function.

Member MFIs self-report their performance on various parameters of the Index which is thereafter

consolidated to generate the Industry’s Compliance Index. MFIN has appointed institutions such as

M-CRIL to increase its surveillance function and determining the validity of the self-reported data

provided by member MFIs.

Chaitanya has scored 81.1 on the Industry Compliance Index, which was found to be less than the self-

reported score of 95.5 (all scores are out of 100). A snapshot of the overall compliance scorecard has

been illustrated below:

Key Deviations:

There was a substantial deviation between the self-reported and the validated score for disclosure to

customers and Institutional process sections. Although Chaitanya discloses the declining interest rate

in the public domain, it does not communicate the effective rate of interest. Clients were trained on

flat interest rate although the reducing balance interest rate was communicated in written. MFIN’s

toll free number and RBI contact details in local language were not adequately displayed in the

branches. Chaitanya is yet to appoint a woman director to its Board. Service quality is not taken into

account while determining the incentive pay-out.

The deviations have been explained in detail in the report.

81%77%

86%82%

88%

96% 95% 94% 96%100%

75%79%

86%82%

88%

80%74%

86%82%

88%

100 39 20 33 8

Total Section 1: Disclosure tocustomers

Section 2: CustomerEngagement

Section 3: InstitutionalProcesses

Section 4:Transparency

Industry Compliance Index Scores

Validated Self-reported Policy Practice Maximum score

ii

About MFIN & Third Party Evaluation

Microfinance Institutions Network (MFIN) is the RBI recognized Self-Regulatory Organization (SRO) of

NBFC-MFIs. MFIN members operate within the overall ambit of RBI regulatory norms, MFIN Code of

Conduct and various directives and prescriptions from the SRO from time to time.

MFIN gets self-assessment and self-reported data from its Member NBFC-MFIs on various parameters

related to RBI Fair Practices Code, Industry Code of Conduct, MFIN Credit Bureau standards and

grievance redressal mechanism. MFIN gets this information validation and evaluated through a Third

Party Evaluation by independent agencies empanelled with MFIN. The TPE report follows MFIN

prescribed methodology on assessment of self-reported data by Member MFIs to MFIN, which

includes information on self-assessed and self-reported agency information to ascertain compliance,

including that n MFIN Industry Compliance Index (ICI) Tool.

Micro Credit Rating International Ltd. (M-CRIL) has been empaneled as one of the agencies by MFIN

to conduct Third Party Evaluation (TPE) of Member MFIs of MFIN.

1 IC Index is a self-assessment tool which has incorporates RBI’s Fair Practices Code (FPC) and the MFIN Industry Code of

Conduct (COC). It assesses compliance with reference to 94 indicators across four broad areas, namely, disclosures to

customers, customer engagement, institutional processes and transparency using an on-line survey, with weights assigned

to each indicator. The total score of the 94 parameters amounts to 100.

1

Executive Summary Introduction

Chaitanya India Fin Credit Pvt. Ltd. (CIFCPL) first commenced its operations in microfinance October

2007. It operates in the states of Karnataka and Maharashtra with a mission to improve “lives of low

income people through the provision of financial services.”

Methodology

To evaluate the self reported data, a two member team held discussions with the management of

Chaitanya to understand and review the policies and processes. The implementation of the policies

and field practices were verified by conducting Focus Group Discussions (FGD)s with clients and staff,

reviewing loan cards and other loan documentation, reviewing the system at the branches, loan files

and corresponding credit bureau reports to determine the efficiency of the loan appraisal. The team

interacted with 163 clients and 28 staff during their visit to four branches and reviewed 106 loan files.

The field visit also included household visits and interactions with the default clients at Kittur branch;

outbound calls were made to five clients who had registered a complaint with Chaitanya in past one

year to gauge the effectiveness of the grievance redressal channel.

Results and Findings

Below is a summary of the strengths and weaknesses observed during the evaluation:

Strengths: Chaitanya has developed a region wise income assessment guidelines to determine the

repayment capacity of clients. More rigorous income assessment is conducted for loans exceeding

Rs35,000 and the appraisal is conducted by a specialized Credit Manager.

Chaitanya has developed a set of Key Risk Indicators (KRIs) as early warning signals to identify problem

centres. Chaitanya regularly shares data with AKMI and refers to information shared by peers before

starting operations in a new area.

Every month all branch staff participate in the regional meetings conducted at the regional office to

discuss gaps and audit findings apart from the business targets.

Weaknesses: Chaitanya conducts CGTs prior to disbursement for all loans. Despite this, the awareness

of clients on the pricing terms was found to be follow. Clients were aware of the flat interest rate and

some could recall the total fees paid at the time of disbursement. However, none could not recollect

the break-up of the insurance fees and loan processing fees. During the credit appraisal, the Branch

Managers (BM) do not consider loans from Business Correspondents (BC) in their appraisal. Chaitanya

currently does not have a policy on restricting the number of amount of loan per household from

Chaitanya.

Accurate client data is not shared with the Credit Bureaus due to a system error which shows loans

outstanding even though they have been repaid.

2

Opinion

Chaitanya is an active member of MFIN and the state industry association of microfinance institutions

(AKMI). Chaitanya has developed and adopted a Fair Practices Code (FPC) which derives from RBI’s

FPC; this is displayed in the branches in local language. It has an effective grievance redress mechanism

to record complaints received at the toll free number. However, there is no mechanism to record

complaints received at the branches. Complaint box was seen in only one of the four visited branches.

Chaitanya has migrated its MIS to Mifos system to strengthen the MIS. However, as a result of the

system bug, some of the loans show as outstanding despite being repaid. Currently, a client/client’s

household can avail all the loans offered by Chaitanya thereby leading to a potential credit risk.

Recommendations

In this sention, broad recommendations have been listed. Detailed recommendations based on the

Industry Compliance Index are part of the report.

In order to preclude a potential credit risk, Chaitanya should develop a policy restricting the total

household indebtedness and increase the rigour of loan appraisal for individual loans.

The quality of training to clients should be improved and the frequency increased to help clients

remember and retain the basic terms of the loans. Disclosure of interest rate should be in declining

terms.

Verifying branch displays should be made part of supervisory visits and Internal Audit.

Acknowledgement

M-CRIL would like to express its appreciation to Microfinance Institutions Network for commissioning

the Third Party Evaluation of Chaitanya India Fin Credit Pvt. Ltd.

We are grateful to Mr Anand Rao and Mr Samit Shetty, Director of Chaitanya India Fin Credit Pvt. Ltd.

for the relentless support and valuable information provided during the evaluation. We would like to

give special thanks to Mr Rakesh Mattar for coordinating and arranging the visit. We would also like

to thank all the Regional Managers, Divisional Managers, Branch Managers, and support staff involved

in the evaluation and appreciate the time given to us by the respondents for compiling this report.

3

Detailed Report

1. Introduction

Chaitanya India Fin Credit Pvt. Ltd. (CIFCPL) started its microfinance operations in 2007 in Chitradurga

district of Karnataka, initially operating as an NGO. With an aim to move towards sustainable

operations, Chaitanya obtained an NBFC license in 2009.

Chaitanya is steered by its promoters, Mr. Anand Rao and Mr. Samit Shetty. Prior to founding

Chaitanya, Mr. Rao had worked both in the corporate and development sectors in various capacities.

He had worked with the Small Scale Sustainable Infrastructure Development Fund (S3IDF) for 5 years

before founding Chaitanya, which is an international not for profit organization, working towards

supporting enterprises in the small scale infrastructure space. Mr. Samit Shetty was the country

manager in Brazil for Olam which is a global leader in the supply chain management of agricultural

products and food ingredients, before founding Chaitanya.

As on 31 March 16, Chaitanya had 1, 30,688 clients 19 districts of Karnataka and 2 districts of

Maharashtra. It offers JLG (Joint Liability Group) Loans, Gold Loans, Two wheeler Loans and Housing

Loans to its clients.

Chaitanya has been a member of MFIN since 2010 and Mr Anand Rao, the promoter and Managing

Director of Chaitanya is on the board of MFIN. Chaitanya is an active member of Association of

Karnataka Microfinance Institutions (AKMI).

Period covered under current evaluation: 6th June to 10th June, 2016

Duration of Internal Audit: 5 Days

a. Company Profile

Indicators March 2014 March 2015 March 2016

GLP 56,47,64,117 99,73, 24, 377 2,16, 78, 04, 036

Active Borrowers 44,074 69,995 1,30,688

Average Loan Size 12, 814 14, 249 16, 588

Number of Branches 29 47 83

Number of Staff 237 414 785

Debt to Equity Ratio 3.30 4.60 6.79

Return on Assets 1.74% 1.02% 1.00%

Return on Equity 5.49% 3.42% 5.80%

Operating Expense Ratio 11.95% 10.96% 10.74%

Financial Expense Ratio 15.73% 16.17% 15.79%

4

b. Shareholding Pattern

Shareholder % holding as of March 2015 % holding as of March 2016

Chaitanya Rural Intermediation

Development Services Pvt. Ltd

100 % 100%

c. Board Details

Name Position on Board

K S Ravi Chairman, Independent Directors

Ane Narasimha Independent Directors

Nanda Kumar Independent Directors

Ramesh Sundaresan Nominee Director

Samit S Shetty Managing Director, CEO

Anand Rao Joint Managing Director, COO

d. Product offered

Product (JLG) JLG JLG - Mortgage housing

Min size (INR) 5,000 1,00,000

Max size (INR) 1,00,000 2,50,000

Rate of Interest 25% 22%

Tenure (max-min) Max: 24 Months & Min 12 Months

Loan use Majorly for income generating activities

For House Construction &

Repairs

Group guarantee Yes No

Insurance premium

0.55% to 0.60% for single Life per

annum, 0.905% to 1.20% for double life

per annum

Insurance cover is on

reducing balance and vary

based on age of the

Customer & Spouse

No. of Clients 1,24,532 241

Portfolio 2,00,39,66,424 2,42,58,105

% of Total Portfolio 92.44% 1.12%

Product (Non- JLG) Gold 2 Wheeler

Min size (INR) 2,000 15,000

Max size (INR) 2,00,000 50,000

Rate of Interest 22% - 25% 25%

Tenure (max-min) Max. 12 Months - Min 3 Months

Max. 24 Months, Min 12

Months

Loan use Emergency Purposes Purchase of New 2 Wheeler

5

Group guarantee No No

Insurance premium No

0.55% to 0.60% for single

Life per annum

No. of Clients 1,000 4,915

Portfolio 1,93,10,942 12,02,68,565

% of Total Portfolio 0.89% 5.55%

2. Objective and Scope

MFIN was established in October 2009 as a Society under the Andhra Pradesh Societies Registration

Act 2001 with the objective of promoting responsible lending supported by good governance practices

and a healthy regulatory environment, in a manner that is client centric. In June 2014, MFIN was the

first entity to be appointed as an SRO for NBFC-MFIs by the RBI. The Industry Compliance Index (earlier

the Responsible Business Index) was launched in 2013. It is a tool to measure performance of member

MFIs vis-à-vis fair practices in lending. The scores reflect the degree of compliance of member

institutions across 94 parameters based on self-reported data.

The objective of the Third Party Evaluation (TPE) is to validate the self-reported score of member

institutions of MFIN. The institutions will be evaluated separately on both, their policies and practices.

The 94 indicators of the Industry Compliance Index are categorised into the following four sections:

• Industry Compliance Index

• Grievance Redressal Tracker

• Credit Bureau Standards compliance reporting and monitoring

• Compliance to MFIN KYC Standards

3. Methodology

MFIN has enlisted M-CRIL as one of the evaluators to verify the data self-reported by Chaitanya for

compiling the Industry Compliance Index. Chaitanya was evaluated on its Policies and the Practices

vis-a-vis the 94 indicators of the Industry Compliance Index.

The team spent two days at the head office interacting with various heads of departments reviewing

the policies and procedures. Further, the team spent three days visiting four branches to ascertain

compliance with policies and practices. The team conducted FGDs with 163 clients, reviewed loan

documents and interacted with 28 staff members to verify the procedures. Across the branches the

team conducted 5 household visits and interacted with 5 default clients at Kittur branch. In addition,

the team reviewed a sample of client documents and observed the displays at the branches. Outbound

calls were made to 5 clients who had registered a complaint with Chaitanya in the past one year.

Chaitanya’s policies and practices were evaluated using the following methodology:

6

Based on the findings using the above methodology, a score was assigned for each of the indicators

and compared with the self-reported information.

List of Policy documents/information that were reviewed:

Field Operational Policy

Chaitanya Fair Practice Code

Chaitanya Client Protection Principle

Chaitanya Code of Conduct

Chaitanya Grievance Redressal

Training Presentations

Risk Management Policy

Audit Manual

Invoices from the different Credit Bureaus

Data Quality reports shared by the various Credit Bureaus

Mails sent to the Credit Bureaus post uploading data

Quarterly mails sent to MFIN

List of Borrowers Documents that were reviewed at the Branch Office:

Client Loan files- Loan Agreements, Loan Application, JLG Group Liability Form, Loan Disbursal Note

Branch Displays - Chaitanya Code of conduct, Customer Grievance Redressal mechanism, Chaitanya Fair Practice Code and Chaitanya Customer Protection Principles.

Details of Sample Branches

• Discussions with management of the MFI

• Review of loan documents

• Review of Operations Manual, HR Manual, Institutional Code of Conduct

• Scrutiny of data shared with the Credit Bureaus

Policies

• Focus Group Discussions with clients.

• Meeting default clients, and aggrieved clients who register complaints at the institution’s grievance redress channel

• Discussions with field staff

• Scrutiny of filled loan documents, Credit Information Reports (CIR)

Practices

Branch Total Rural Years in PAR Default Complaints Clients

(Karnataka) clients clients operation (%) Clients in past 12 Sample

(no.) months (no.)

Ajjampur 3,156 3,156 3.5 0.05 3 36 25

Jagalur 3,371 3,371 6.7 0.02 1 50 44

Hosadurga 3,405 3,405 3.4 - 50 64

Kittur 2,577 2,577 5.1 1.05 43 39 30

7

Branch Selection: 4 branches were selected for the TPE of Chaitanya.

Lending methodology: Chaitanya offers both group and individual loans. One individual

loan branch was selected (Jagalur Gold and Jagalur vehicle) was selected for the exercise.

The individual loan branch is housed in the same premises as the group loan branch.

Methodology Active Borrowers Proportion Portfolio o/s (INR) Proportion

Group 95.4% 93.5%

Individual 4.6% 6.5%

Total 1,30,451 2,166,449,870

States: All selected branches are located in Karnataka; branches in Maharashtra were not

selected due to low portfolio share.

State Active borrowers proportion

Portfolio o/s (INR) proportion

Karnataka 98.5% 98.6%

Maharashtra 1.5% 1.4%

Total 124,429- 2,026,662,426

Rural/Urban mix: Chaitanya operates only in rural areas, hence all the clients for the

exercise were rural clients

Complaint clients: Branches with a high volume of calls were selected although the team

was unable to meet a complaint client.

Criteria for selection of branches:

Ajjampur had the highest GLP among all the branches.

Hosadurga had the largest client base.

Jagalur and Hosadurga branches have the highest volume of client calls.

Kittur has the highest number of default clients and PAR30 for group loan portfolio and of

the sample branches it was the furthest from the HO.

Jagalur Gold has the highest PAR30 for individual loan portfolio and Jagalur vehicle has

highest GLP.

Jagalur is the oldest branch.

Branch District Portfolio

o/s (INR)

Total

Clients

Years in

operati

on

PAR30 Default

Clients

(No.)

Calls in

past 12

months

(No.)

Ajjampur Chikmanalur 67,574,300 3,156 3.4 0.05% 3 36

Jagalur Davanagere 65, 816,043 3,371 6.6 0.02% 1 50

Jagalur

Gold/Vehicle

Davanagere 9,776,944/

42,911,353

494/

1,838

- 27%/

12%

135/

266

-

Hosadurga Chitradurga 62,618,547 3,405 3.2 0.0% 0 50

8

Kittur Belgaum 40,406,711 2,577 5.0 1.05% 43 39

Number of field staff interviewed: 28

Cut-off date for review date: 2nd May 2016 (CIR)

Number of field staff interviewed: 5

4. Validation of Industry Compliance Index Score

Disclosure to Customers: Chaitanya discloses all the product terms and conditions to its clients

in the loan card and loan agreement. The pricing information is displayed along with the

institution’s FPC which is derived from the RBI’s FPC. Although the policies mandate display the

grievance redress mechanism at the branches it was missing in one of the four visited branches.

Staff fill the loan application forms during the CGT; the loan application form does not contain

the details of the loan product. An acknowledgement slip is given to clients which states that

Chiatnaya would process the loan application within one month of receiving the application The

terms and conditions are part of the loan card which is given to each client at the time of

disbursement. In the loan cards for three centres, the flat interest rate was mentioned in the loan

cards. Clients are also communicated the flat interest rate. A comprehensive loan agreement is

given to all clients at the time of disbursement; the agreement is printed in Kannada. Clients are

not issued a loan sanction letter.

Sub Factor No. of

parameters

Self-Declared

Score

MFI score policy

MFI score practice

Maximum score

At branch 9 8 6 4.25 8

In loan card 12 12 13 12.5 14

In loan agreement 11 12 9 9 12

In loan application form 3 3 3 3 3

In loan sanction letter 2 2 0 0 2

Total 37 37 31 28.75 39

Chaitanya has scored low on its practice score for the disclosure at branch as few of the branches

did not display the grievance redressal mechanism, contact details of Grievance Redressal Officer

(GRO), MFIN Toll free number and RBI Regional Office in local language. The loan card did not

contain the MFIN Toll free number. The loan agreement did not contain clause affirming the

institution’s commitment to transparent and fair lending practices and the institution’s

accountability for inappropriate staff behaviour.

Customer Engagement: Chaitanya has defined the process for loan sanction, disbursement and

repayment in its field operational manual. Prior to disbursement clients undergo multiple training

by the Credit Officer and the Branch Manager. The terms and conditions are reinforced by the

CO and BM on the day of disbursement. The level of awareness of clients on the rate of interest,

insurance amount, loan processing fees was found to be low.

9

Chaitanya does not take written consent of the client for third party disclosures and does not

offer Non-credit products to its clients. The coverage of its clients under the livelihood training

and financial literacy programs organised by Chaitanya was not being monitored.

Sub Factor No. of

parameters

Self-Declared

Score

MFI score policy

MFI score practice

Maximum score

Loan processes 9 10 10 10 10

Customer education/ rights/ welfare

9 8.75 7.25 7.25 10

Total 18 18.75 17.25 17.25 20

Institutional Process: Chaitanya has a comprehensive recruitment policy for its field staff. All staff

had undergone the induction training at the time of joining and receive regular

trainings/instructions on gaps observed in processes during the monthly regional meetings.

Chaitanya does not have a policy which directly links incentives of its field staff to service quality.

It has a dedicated toll free number which is also printed on the loan card for clients to record

their complaints and follows a multi-level escalation policy if the complaint is not addressed

within a stipulated time. The details of the grievance are presented to the Board every quarter.

One-third of the Board members are independent although there is no woman director currently.

Chaitanya has a Board approved risk management framework which also includes restricting the

portfolio concentration across districts.

The Company secretary has been appointed as the Compliance Officer; the Compliance officer’s

approval is not necessary for product launches and process changes at Chaitanya.

Sub Factor No. of

parameters

Self-Declared

Score

MFI score policy

MFI score practice

Maximum score

Human Resources 10 11 9 9 11

Customer Complaint Redressal System

7 6.75 7 7 7

Audit and Compliance 6 6 5 5 6

Board 8 8 6 6 9

Total 31 31.75 27 27 33

Transparency: Chaitanya has scored well on this parameter. It displays the details of the loan

products including their interest rates and client grievance redressal system on its website. Non-

credit financial products are not offered by Chaitanya. Chaitanya shares the client data with all

the 4 Credit Bureaus on a weekly basis and every month. Chiatanya reports data to MFIN for the

Micrometer and Microscope quarterly and annually respectively.

Sub Factor No. of

parameters

Self-Declared

Score

MFI score policy

MFI score practice

Maximum score

Website 3 3 2 2 3

CICs 1 1 1 1 1

10

Quarterly data reporting 1 2 2 2 2

Annual data reporting 1 1 1 1 1

Pricing data 1 1 1 1 1

Total 7 8 7 7 8 Detailed Validation Score (consolidated) is included in Annexure 1.

5. Evaluation of CB & KYC Standards Compliance

Chaitanya verifies all loan application with the Credit Bureau before loan approving the loan. The

administrative assistant keys in the client information in the system and at the end of the day the CB

report is generated for all clients and shared with the respective branches. The CB check is done to

eliminate clients who already have 2 loans from other NBFC-MFIs, have loan outstanding exceeding

Rs60,000 or those who have overdues. However, loans from BCs are not considered in this

assessment. In cases, where the client information is not available in the bulk enquiry, single CB

enquiry is done for the client. For group loans the CIR is generated with Highmark as the concerned

staff thinks that it has a better summary tool and is thus more user friendly. For consumer loans the

CIR is generated from Equifax.

The table below illustrates the number of enquiries made in past 3 months and the loans disbursed

against these enquiries.

CIR Usage

Number of Enquiries (CIRs)

based on invoices of two CBs

Number of loans disbursed

(based on MFI MIS)

Jan 2016 18,940 14,474

February 2016 17,912 15,469

March 2016 24,974 20,439

Loans were disbursed within 15 days from the generation of the CB report.

CIR Validity

Sample Number of Loan Accounts

Turnaround Time (TAT) TAT for CIR pull out before date of loan disbursement

(% of sample)

Within 7 days 42.45%

Within 15 days 100.00%

Within 20 days Not Applicable

Within 30 days and above Not Applicable

The KYC policy of Chaitanya states that of the two standard IDs that are required, one compulsorily

has to be either UID or Voter ID. In one of the cases passbook was accepted as an ID as both UID and

Ration card were not available. The team reviewed 106 files at the branch office for KYC Compliance

and based on it the following observation was made regarding the KYC collected by Chaitanya from

its client.

KYC Usage

Number of Files UID% Voter ID % Any other ID Remarks

11

106 46.22% 94.33% 80.18%

6. Sections on any other evaluation parameters

Loan products and policies: Apart from group loans, Chaitanya offers vehicle, housing and gold

loans. Chaitanya intends to discontinue the gold loan products as the management believes that

the product does not fit in with the vision of the institution. There is no credit policy restricting

the number of loans that an individual/household can avail from the variety of products that

Chaitanya offers. During the field visit it was noticed that a Client Vishalamma (Client ID: 2641)

and her husband NK Viresh Hanumanthappa (Client ID: 687407) had availed four active loans from

Chaitanya: group, gold, housing and vehicle which creates a potential credit risk.

MIS: Inaccuracies in client data were seen in the system; despite having closed the loans, for some

of the clients the MIS showed a miniscule amount as outstanding. This was due to an error that

occurred at the time of migrating the MIS from Delphix to the Mifos system. Clients trying to avail

loans were rejected by other institutions as they would fall out of the two MFI criteria even though

the client would have repaid the entire loan. A complaint to this effect was recorded with the

grievance redress channel of Chaitanya. In January 2016, a complaint was registered by client

Rudramma from Aranalli; she informed that although she had closed the loan balance with

Chaitanya but the CB report is showing an outstanding balance of Rs. 2 and hence she was not

able to avail loans from other MFIs. The institution is taking steps to rectify this error. The branch

sends details of such clients to the accounts department every Friday for rectification. The

management has informed the team that this will be rectified in the MIS for all clients by the end

of July.

Updating KYC: For some clients, it was observed that the UIDs were not updated in the system

despite being provided by the client/collected by the staff. The institution has issued instructions

to the staff to ensure accurate updating of records in the MIS.

Default clients: In Kittur branch, there were 43 default clients in the Alnavar region and the team

met 5 of these clients. The repayment issue started in August 2014 when the clients were in the

3rd cycle; they were part of different centres. The clients had given their loans to 4 influential

clients of their village who had promised to repay the instalments but were unable to pay after

few instalments. The field staff from Chaitanya visited them but the clients refused to pay and

asked the staff to collect the money from those 4 clients. For few months, 4 of them paid a little

amount but they are facing difficulties in paying the outstanding amount. Few of them have

agreed to pay a lower amount than the actual amount of instalment but few have completely

refused to pay.

12

7. Good Practices

Chaitanya has formulated and adopted a Corporate Governance Code for its Board. The code

stipulates the ideal Board quorum and the frequency of Board meetings and lists the roles and

responsibilities of the Board members. Further, the code has details of various Board committees and

guidelines for their composition, quorum and responsibilities. Board has 3 sub-committees: Audit, Risk

Management (RM) and Nomination and Remuneration. The audit committee of Chaitanya has 3

members and is chaired by an independent director; it met four times during FY 15-16 as stipulated in

the code. The Risk Management and Mitigation Policy has been approved by the Board and lists the

focus areas – management of credit risks, market risks, liquidity risks, interest rate risks and

operational risks. The promoters are proactive in dealing and addressing industry risks in Karnataka.

The RM committee instructed the management to manage portfolio concentration in four districts

which collectively accounted for 60% of the portfolio by decreasing the collective share to 50%. The

committee analyses and reviews portfolio quality and discussed concerns regarding aggressive lending

in the industry.

Chaitanya has documented its policies however, the HR policies and training modules need to be

collated and updated. Field processes and credit policies are detailed in the Field Operations manual.

The audit process and checklists are documented in the Audit manual and the Risk Management policy

encapsulates steps for managing and mitigating risk.

Human Resources and training: The recruitment guidelines elaborate the hiring techniques and

tips for vetting non-eligible candidates and guiding questions to determine the personality traits

and right fit for the institution. Recruitment is decentralised at the regional level and the interview

panel consists of a Regional Manager and an HR representative; Chaitanya prefers to hire fresh

graduates as Credit Officers (CO) as the management believes it is easier to orient them to the

policies of Chaitanya. Mandatory background checks are conducted for all successful candidates

by the BM and RM. Although not documented in the recruitment guidelines, Chaitanya does not

allow staff to handle their villages or villages of their partners. Reference check is done for all

experienced staff before joining via phone calls. For hiring of Regional Managers and Divisional

Managers, one of the promoters participates in the selection process.

All staff undergo a 5 day classroom training followed by shadow training lasting 2 months; no

target is given for the first 3 months. All branch staff participate in the monthly regional meetings

during which audit findings and process gaps are discussed apart from the business aspects.

Trainings and best practices are elucidated during these meets. Hi-potential training is conducted

for staff who are due for promotion.

Operations: Chaitanya operates exclusively in rural areas to reach the underserved. It has

developed a set of Key Risk Indicators (KRIs) as early warning signals to identify problem centres.

Chaitanya regularly shares data with AKMI and refers to information shared by peers before

starting operations in a new area.

Credit Policies: Loan sizes are restricted for new branches. Credit Bureau (CB) check is conducted

for all loans; the CB check is not automated in the system and it is the responsibility of the

administrative assistant to ensure that the CB check is done for all loan applications. In cases

13

where client information is unavailable on bulk upload, a single CB report is generated. For higher

sized loans, income assessment is done by a separate Credit Manager. Chaitanya has developed a

division-wise income assessment criteria based on the livelihood information in order to make the

assessment objective.

Grievance Redressal Mechanism: The Company has a systematic procedure for handling

customer complaints. Each customer receives a loan card which has the detailed procedure for

customer grievance. Chaitanya has a five step are five levels grievance escalation process including

the Branch Manager, Regional Manager, Grievance Redressal Officer (GRO) of Chaitanya, AKMI

toll free number for registering complaints and the RBI. Details of the calls received at the toll free

number are recorded and shared with the management every month and the Board every quarter.

Livelihood and Skill Development Training: As part of its CSR focus, Chaitanya has undertaken

various initiatives. Chaitanya participated in the Pradhan Mantri Jan Dhan Yojana (PMJDY) by

assisting 300 clients of two branches – Khanapur and Bailangula to open bank accounts and

subsequently disbursed loans in those accounts. In 2015-16, it organised financial literacy trainings

at the FLCCs in partnership with Syndicate Bank, Vijaya Bank, NABARD, KVG and Kendra Bank.

2000 beneficiaries participated in these trainings; this included both clients and non-clients of

Chaitanya. Apart from training on financial literacy, beneficiaries were intimated of the various

government schemes. Apart from this, Chaitanya also provides skill development trainings to

people in its area of operations in association with the Rural Development and Self-employed

Training Institute (RUDSETI) at Dharwad and Chitradurga. The training is provided free of cost; 5

beneficiaries received the one-month long training, of which 2 were clients of Chaitanya.

8. Observations

In terms of systemic deviation in policy standards of the Industry it was observed that:

Chaitanya displays the interest rate in declining terms for all its products in local language;

however, it does not display the effective rate.

Chaitanya does not have a policy on displaying the MFIN toll free number and RBI contact

details in local language at the branches. Also, the details of Grievance Redressal Officer and

MFIN toll free number were not displayed on loan cards.

The client UID had not been updated in the system despite being provided by the

client/collected by the staff: At the branches it was observed in some of the loan files that the

branch staff had not updated the details of the UID in the system despite the document being

provided by the clients.

Chaitanya does not have a policy to provide a document containing “MFIs Commitment to

Customers” to its clients at the time of disbursement which is stipulated by MFIN as part of its

Code of Conduct.

Chaitanya has no policy to take written consent of the client for any third party disclosure

There is no clause regarding commitment for transparent and fair lending practices and MFI

being accountable for preventing inappropriate staff behaviour in the loan agreement.

14

Chaitanya’s Credit policy does not limit the number of loans/ loan amount that a client can

borrow from the MFI.

Chaitanya’s incentive structure for field staff does not reward quality of service.

There were inaccuracies in client data in the system such as loans showing as outstanding

despite being closed and therefore also in the data shared with the Credit Bureaus.

The interest rate is communicated to clients in flat terms verbally.

In terms of procedural deviation in implementation of the policy in practice it was observed that:

Chaitanya did not display the effective interest rate for all its products in local language on its

notice board at the branch offices.

Although Chaitanya instructs branches to display the contact details of the RBI Regional Office

in the branches, the contact details of the RBI Regional Office was displayed only in two of the

four branches - Ajjampura and Hosadurga, albeit in English.

The grievance redressal mechanism containing the details of Grievance Redressal Officer and

the Client Protection Principles (as mentioned in Industry CoC) in in local language, was not

displayed in the Kittur branch.

None of the branches had displayed the MFIN toll free number on their notice boards. The

contact details of Regional RBI Office was displayed only at Ajjampura and Hosadurga

branches in English.

Two loan cards did not have the passport size photograph of the client along with its spouse.

The clients of Shivani-02 centre of Ajjampura Branch were given loan agreement without the

signature of Branch Manager.

In some centres it was observed that the clients did not retain the loan agreements with them

but kept all of them together with the group leader for safekeeping purpose.

During interactions, most of the clients were unable to recall or point out the rate of interest

written on the cards. They could recollect the approximate fees paid for availing the loan, but

not the break-up of the loan processing fee and insurance fee. They lacked sufficient

knowledge on the amount of interest/interest rate, insurance premium and the loan

processing fees paid.

Chaitanya mandates its staff to update the client details accurately and regularly but it was

observed in some of the loan files that the branch staff had not updated the details of the UID

in the system despite the document being provided by the clients.

15

9. Recommendations and Suggestions

To increase compliance with MFIN parameters and align with the industry best practices, the following

changes have been recommended:

The notice boards at the branches should properly display all the information regarding the

products Chaitanya offers. Verifying branch displays should be included in the scope of the

branch supervisors and the Internal Audit.

Chaitanya should update the loan agreement to include a declaration with a commitment to

transparency & fair lending practices, accountability for preventing inappropriate staff

behaviour and timely grievance redressal, and that the recovery of loan given in violation of

the regulations should be deferred till all prior existing loans are fully repaid.

Chaitanya should issue clear instructions to field staff to communicate the declining interest

rate in the loan cards.

It is recommended to update the loan card with details of the MFIN toll free number. A clause

should be added regarding this in the Grievance Redressal Policy in addition to the AKMI

number.

Chaitanya should communicate only the declining interest rate to the clients, even verbally.

Chaitanya should take written consent of its clients for any third party disclosures by them.

The incentives for the field staff should also include aspects of service quality such as

behaviour towards clients, and feedback of the clients.

The approval of Compliance Officer (CO) should be sought prior to making product or process

changes or introducing new products.

Few clients received livelihood and financial literacy training organised by Chaitanya in

partnership with various organisations. Currently, Chaitanya does not map the proportion of

the beneficiaries who are also its clients.

Chaitanya should formulate clear guidelines on the total household indebtedness of all loans

from Chaitanya.

Management should issue instructions to concerned staff at the branches to accurately

update the details of the client’s KYC in the MIS.

Chaitanya should share with clients MFIN’s “MFIs Commitment to Customers” document at

the time of disbursement.

It is further recommended to supplement the change in policy by conducting regular audits

and monitoring visits of the field staff.

Annexure 1: Detailed Compliance Score Card

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Parameter Scoring Maximum

Score

MFI Self- Reported

Score Policy Score

Practice Score

Consolidated Score Agency's Observation

Agency comment on difference in policy score

Count of Sample checked

Count of complaint

cases

Validated

Score

1. D

iscl

osu

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ust

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1.1

At

Bra

nch

1.1.1 Displays the basis and effective rate of interest rate charged for all loan products prominently in vernacular language

option 1=0 option 2=0.25 option 3=0.5 option 4=0.75 option 5=1.00

1 1 0

The basis rate was displayed in local language .The effective interest rate charged for all loan products was not displayed at any of the branches.

4 4 0 0

Chaitanya displays the interest rate in declining terms for all its products in local language on a printed A4 sheet; however, it does not display the effective rate. Details of the loan processing fee and the insurance premium were displayed in the Hosduraga branch.

1.1.2 Displays the Company Grievance Redressal mechanism followed by the company in vernacular language

option 1=0 option 2=0.25 option 3=0.5 option 4=0.75 option 5=1.00 1 1 1

The Company Grievance Redressal mechanism was not displayed in local language at Kittur Branch.

4 1 0.75 0.875

The stepwise institutional grievance redressal mechanism was displayed in local language in three of the four visited branches and in English at all four branches. It contains details of the branch address, regional office redress, Chaitanya’s toll free number and AKMI's toll free number. (Click here to see image)

17

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1.1.3 Displays Contact details of Company's Grievance Redressal Officer in vernacular language


1 1 1

The contact details of Mr. Guruswamy, the Grievance Redressal Officer (GRO) was not displayed in local language at Kittur Branch.

4 1 0.75 0.875

The contact details of Mr Guruswamy, the Grievance Redress Officer (GRO) was displayed in three of the four branches visited by the team - Ajjampur, Jagalur and Hosadurga and in English in all the four branches. (Click here to see image)

1.1.4 Displays MFIN Toll Free No. for registering client grievances/disputes


1 1 0

None of the branches had displayed the MFIN toll free number for registering client grievances on the notice boards.

4 4 0 0

Chaitanya does not have a policy on displaying the MFIN toll free number in the branches. (Click here to see image)

1.1.5 Displays contact details of Regional RBI office in vernacular language


1 1 1

The contact details of the Regional RBI Office was not displayed in local language at two branches.

4 4 0 0.5

Chaitanya instructs branches to display the contact details of the RBI Regional Office in the branches. The contact details of the RBI Regional Office was displayed only in two of the four branches - Ajjampura and Hosdurga, albeit in English. (Click here to see image)

18

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1.1.6 Display of Client Protection Principle (as mentioned in Industry CoC ) in vernacular language


1 1 1

The principles were not displayed on the notice board in Kittur.

4 1 0.75 0.875

The institutional Client Protection Principles, which draws from MFIN's Customer Protection Code, were displayed in local language at all the branches except Kittur. (Click here to see image)

1.1.7 Displays Fair Practices Code in full spirits of RBI guidelines in vernacular language. The FPC to include the following:


1 1 1

4 0 1 1

Chaitanya displays the institutional FPC, which is based on RBI's FPC, and a summary of the FPC in the Code of Conduct in the local language in all its branches.

1.1.7A a statement articulating commitment to transparency and fair lending practices in vernacular language


0.5 0.5 0.5

4 0 0.5 0.5

Chaitanya articulates its commitment to transparent and fair lending practices in both the CoC and the FPC displays. Clause B of the FPC states that Chaitanya is committed to transparency and fair practices lending to its borrowers in vernacular language and display the same in all its branches and also print it in all borrower loan cards.

19

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1.1.7B a declaration that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance Redressal in vernacular language


0.5 0.5 0.5

4 0 0.5 0.5

Chaitanya declares in clause B of the FPC that Chaitanya will be accountable for preventing inappropriate staff behaviour and provide for timely Grievance Redressal to the borrower.

1.2

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1.2.1 Provides loan cards to customer for each loan product disbursed


The gold loan clients were not given a loan cards.

158 0 2 2

Chaitanya gives every clients loan cards (printed in local language - Kannada and Marathi) with a copy of the loan repayment schedule (in English) stapled to the loan card at the time of disbursement. Also, loan cards are given for vehicle and housing loan but not for gold loans.

1.2.2 Adequately reflects information which identifies the customer.


1 1 1

Two clients did not have their picture on the loan card. However, no proof was collected for the same.

158 2 1 1

The loan card captures details of the client - client's name, name of souse or father and address. Joint/single photograph of the client and the spouse is pasted on the loan card. Client details were adequately filled in the loan cards seen by the team, however, the passport size photograph was missing in two loan cards.

20

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1.2.3 Accurately displays the basis and effective rate of interest charged for the loan product given


2 2 2

158 25 1.5 1.75

Although in most of the loan cards and in all loan repayment schedules the interest rate in declining terms was mentioned, the interest rate in flat terms was mentioned in the loan cards of three centres. Although the effective interest rate is not displayed, the loan card displays the total loan processing fee and the insurance premium collected. The flat interest rate is communicated to the clients. During client interactions, most were unable to recall or point out the rate of interest written on the cards. Although clients could recollect the approximate fees paid for availing the loan, they could not recall the break-up of the loan processing fees and insurance fee. (Click here for the loan cards)

1.2.4 States that no penalty is charged in delayed payment


1 0 1

A declaration in loan card states that no penalty is charged in case of delayed payment.

158 0 1 1

A declaration in the loan card states that Chaitanya does not charge any penalty for delay in payments. During the discussions, the clients affirmed that they won't have to pay any penalty for delayed payments. (Click here for loan card)

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1.2.5 States that no security deposit / margin is being collected from the customer


1 0 1

A declaration in loan card states that no security deposit/margin will be collected from the customer.

158 0 1 1

A declaration in the loan card states that Chaitanya does not collect any security deposit or margin money from its clients. No security deposit or margin money was taken from the clients. (Click here for loan card)

1.2.6 Fully displays all other terms and conditions attached to the loan


1 1 1

The loan card gives details of the main terms of the loan.

158 158 0 0.5

The pricing information, including interest rate, loan processing fees amount, and insurance premium amount for client and spouse, livestock premium are disclosed in the loan card apart from the loan amount and the loan purpose. Mission of the institution and the grievance mechanism are also part of the loan card. Chaitanya also declares in the loan card that it follows RBI's Fair Practice Code for providing loans, it does not charge penalty for delayed payment and does not take deposit/margin money.

1.2.7 Clearly states that grant of loan is not linked to any other product /services offered by the MFI or third party


1 1 1

158 0 1 1

A declaration in the loan card clearly states that the grant of loan is not linked to any other products offered by the MFI.

22

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1.2.8 Clearly shows acknowledgements by the MFI of all repayments including instalments received and the final discharge


1 1 1

158 0 1 1

Clients are given a group receipt for payment of the loan processing fee and the insurance fee. In case the disbursement of a client does not happen on the same day as the other group members, an individual receipt is given. The Credit Officer makes entries in the loan card regarding the repayment amount and date of repayment and signs the loan card. All the group receipts were found attached together in the client passbooks. Although some groups could not produce the receipts given for payment of loan processing fees and insurance premium, they affirmed that it had been provided to them at the time of disbursement.

1.2.9 Clearly states commitment to transparency and fair lending practices as prescribed by RBI


1 1 1

158 0 1 1

The loan card (printed in local language) states that the MFI will follow RBI's Fair Practice Code for providing loans.

23

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1.2.10 Displays the contact details of Grievance Redressal Officer of the Company and MFIN Toll Free Number for registering client grievance/ disputes


1 1 0

None of the loan cards had the contact details of Mr Guruswamy, GRO and the MFIN Toll free Number. The loan cards had been stamped with the branch office number and had details of AKMI and MFI (Chaitanya India Fin Credit Pvt. Ltd.) Toll Free Number.

158 158 0 0

The contact details of the MFIN Toll Free Number were not mentioned in any of the Loan Cards. The insitution's toll free number is printed in the loan card wihch is overseen by the Grievance REdress Officer (GRO). None of the clients were aware of the MFIN Toll free Number. For new disbursements, stickers with MFIN numbers will be pasted on the loan cards. (Click here for loan card)

1.2.11 Displays all entries in vernacular language


1 1 1

158 0 1 1

The loan cards are printed in vernacular language (Kannada/Marathi).

24

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1.2.12 Clearly gives fee structure of non-credit products (if any)

option 1=1.00 option 2=0 option 3=0.25 option 4=0.50 option 5=0.75 option 6=1.00

1 1 1

158 0 1 1

All loan cards contained details of the insurance premium and in percentage terms/amount per thousand Rupees (inclusive of the service charge).

1.3

In L

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Agr

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1.3.1 Provides customer a copy of loan agreement for each loan disbursed


2 2 2

114 0 2 2

At the time of disbursement, the clients sign the loan agreement (in duplicate), loan disbursement note and the group guarantee form. Only a copy of the loan agreement is given to each client. Loan agreements were seen for 11 of the 16 centres visited by the team; the remaining centres confirmed that they had received a copy of the loan agreement but could not be seen at the time of the visit. All the loan agreements are kept with the centre leader for safekeeping.

25

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1.3.2 States all terms and conditions of the loan


1 1 1

114 7 1 1

All the terms and conditions including the declining interest rate (in declining terms), processing fees (1%) and insurance premium (as charged by the insurance company) etc. were duly filled in the loan agreements. In Ajjampur branch, Shivani 2 centre had loan agreements (7 clients) without the Branch Manager's signature.

1.3.3 States that pricing of loan involves only three components viz; interest charge, processing charge and insurance premium (which includes administrative charges in respect thereof)


1 1 1

114 0 1 1

In clause 14 of the agreement, Chaitanya declares that "no other charges or payments, to be collected or already collected from the borrower other than the interest rate, loan processing fees and the insurance premium." The clients also confirmed that they only paid the insurance premium and loan processing fees at the time of disbursement.

1.3.4 States that no penalty charged on delayed payment


1 1 1

114 0 1 1

Clause 15 of the agreement states that no penalty will be charged in case of delayed payments. During field visits, the clients mentioned that they had never paid penalty.

26

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1.3.5 States that no security deposit/margin is being collected from the borrower


1 1 1

114 0 1 1

Clause 17 of the loan Agreement states that "no security deposit or margin money would be collected." The JLG clients also confirmed that no collateral or security deposit is taken for loan disbursal.

1.3.6 States that the moratorium (between the grant of the loan and the due date of the repayment of the first instalment) is not less than the frequency of repayment


114 0 1 1

The agreement mentioned in clause 18 that moratorium between the disbursal date and first instalment date shall not be less than the frequency of repayment chosen by the borrower which was confirmed by the clients.

1.3.7 Statement of an assurance that privacy of borrower data will be respected


1 1 1

114 0 1 1

In clause 19 of the agreement, the MFI assures that the privacy of the client will be maintained except with respect to any disclosure for auditing or statutory purposes.

1.3.8 Statement articulating commitment to transparency and fair lending practices in vernacular language


1 1 0

There is no clause in the loan agreement regarding the institution's commitment to transparency

114 114 0 0

Chaitanya does not make this declaration in the loan agreement.

27

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and fair lending practices.

1.3.9 Has a declaration that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance Redressal


1 1 0

There is no declaration in the loan agreement which states that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance Redressal.

114 114 0 0

Chaitanya does not make this declaration in the loan agreement.

1.3.10 Has a declaration that MFI will not lend to borrower with more than two NBFC-MFIs loan


1 1 1

114 0 1 1

Chaitanya takes a self-declaration from the client in the loan agreement as a pre-condition to granting the loan; it states that the borrower does not have an outstanding loan with more than one other NBFC-MFI.

28

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1.3.11 Has a declaration that recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.


1 1 0

There is no declaration in the agreement regarding this.

114 114 0 0

There is no declaration in the loan card stating that recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.

1.4

In L

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1.4.1 Includes product information details


1 1 1

106 0 1 1

The loan application form has details of the product, the interest rate, repayment frequency.

1.4.2 Indicates list of documents to be submitted with the application form


1 1 1

106 0 1 1

The application form lists the documents accepted as an ID proof/Age Proof and address Proof; these documents include - Aadhar, voter ID and ration card. In Jagalur branch, for a clients of the centre Muddapura 3 voter Id was taken as the primary KYC and the bank passbook as the secondary KYC. (Loan ID: 250068: Karibasamma).

29

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1.4.3 Indicates the time frame within which loan applications will be disposed


1 1 1

106 0 1 1

The acknowledgement slip which is part of the loan application form and is given to clients after filling in the loan application states that the loan will be provided within 1 month.

1.5

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1.5.1 Reflects the amount of loan sanctioned along with the terms and conditions including annualised rate of interest


1 1 0

The Loan Disbursal Note (LDN) mentions the Loan Disbursal Amount and the Loan Disbursal Number. The annualised rate of interest is not mentioned on LDN.

158 158 0 0

Chaitanya does not provide Loan Sanction Letter but gives a Loan Disbursal Note (LDN) to its clients which mentions the sanctioned loan amount but does not state the rate of interest.

30

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1.5.2 A borrower signed copy of sanction letter with acceptance of terms and conditions is on company's record


158 0 0 0

Chaitanya does not provide Loan Sanction Letter but gives a Loan Disbursal Note (LDN) to its clients.

2. C

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Enga

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2.1

Lo

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(san

ctio

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isb

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rep

aym

en

t)

2.1.1 KYC requirement of MFI are fully aligned with MFIN KYC standards


106 0 2 2

The KYC policy of Chaitanya states that of the two standard IDs that are required, one compulsorily has to be either UID or Voter ID.

31

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2.1.2 Uses Credit Information Report (CIR) for every loan granted


1 1 1

106 0 1 1

The AA does the data entry of the loan application forms after the customer awareness training by the CO. Overnight bulk CB check is done for all applications logged into the system for that day. In case the client's report is not available on batch upload, single enquiries are done on Highmark, which was seen during the branch visits. The BM ensures that the CB check is done for all loan applications and notes the details of other loans in the loan application form.

2.1.3 Staff conducts full due-diligence. A copy of due-diligence is available in the client loan file


1 1 1

106 0 1 1

Credit Officers collect details of the occupation and external liabilities of the client in the loan application forms and verify the information during the household visits. For repeat clients, the Branch Manager assesses the centre quality based on predefined parameters including income, borrowing levels of the members, loan utilization in past loans, centre attendance and discipline of the group. For large size loans, cash flows are analysed using an income assessment guidelines which are region specific. In the branches, detail of the loans in the loan application forms were filled

32

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completely and matched with the CB report. Sample income assessment forms were also seen. Although in most cases CB report was the basis for capturing data on other loans, in some cases it was seen that data for other loans was captured even though it did not show up in the CB report.

2.1.4 Loans are disbursement only at a central location (centre meeting/branch office)


1 1 1

106 0 1 1

Loan disbursement happens only at the branch office. All members have to be present. However, exceptions are made for genuine cases or when the disbursement amount exceeds Rs 8 lacs and the client is requested to visit the branch the following day.

2.1.5 More than one individual is available at loan sanctioning and disbursement of loans


1 1 1

106 0 1 1

Credit Officer (CO), Administration Assistant (AA) and Branch Manager (BM) are present during loan disbursement. The credit officer/administration assistant ensure that the loan cards are filled and verify the IDs to ensure that the same person has come to take the loan. The CO explains the documents to the borrowers and collects loan processing fees and insurance fees. The Branch Manager reiterates the main terms of the loans before disbursing the loan.

33

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2.1.6 Loan is repaid only at a central designated place (centre meeting)


1 1 1

106 0 1 1

Clients repay during their centre meeting held at a designated place fortnightly or monthly except for the last instalment which can be repaid at the field.

2.1.7 Validity of Credit Information report (CIR)

option 1=1 option 2=0

1 1 1

106 0 1 1

The Operations policy states that the validity of the CIR is 15 days from the date of report generation. The staff was aware of the same and no deviations were noted in the files that were checked at the branch office.

2.1.8 Field staff goes for collecting repayment at the place of residence or work place of the client only if client fails to appear at central designated place on 2 or more successive occasions


1 1 1

106 0 1 1

As specified in the NBFC-MFIs (Reserve Bank) Directions, 2011, which is also part of Chaitanya’s Fair Practice Code, recovery will normally be made only at a central designated place. The field staff will be allowed to make recovery at the place of residence or work of the borrower only if borrower fails to appear at central designated place on 2 or more successive occasions. Although the field process policies do not explicitly prohibit visiting the clients before 2 occasions, field staff affirmed that they would visit only of the situation warrants. The clients said that the field staff had never visited their residence or workplace for collection.

34

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Score

2.1.9 Loan repayment is only collected by employees (MFI staffs). Outsourced recovery agents are not used for collection


1 1 1

106 0 1 1

Only the MFI staff can collect loan repayments.

2.2

Cu

sto

me

r Ed

uca

tio

n, R

igh

ts a

nd

We

lfar

e

2.2.1 MFI has a well-structured Financial Education module to train customers


1 1 1

158 0 1 1

New clients are trained for 3 days and repeat clients are trained for 2 days. During the customer awareness meeting, the CO communicates the details of the loan - interest rate, repayment frequency; eligibility criteria – loans given in groups of 4 to 7 people; the concept of joint liability is clearly explained; compulsory attendance for repayment meetings, etc. Clients could recall being trained on some product details and the terms and conditions.

2.2.2 Customers are charged for undergoing Financial Education module


1 1 1

158 0 1 1

The customers are not charged for undergoing the trainings.

2.2.3 Takes written customer consent for any third party disclosure (privacy of client data)


1 1 0

No written customer consent is taken for any third party

158 158 0 0

Chaitanya does not take written consent of the client for any third party disclosure.

35

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MFI Self- Reported

Score Policy Score

Practice Score




Count of complaint

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Validated

Score disclosures by Chaitanya.

2.2.4 MFI has a policy to suspend recovery of loan from client/group in the event of unfortunate demise of insured client and/or her spouse.


1 1 1

158 0 1 1

In case of demise of the client or her spouse, the loan repayment is discontinued as soon as the institution is informed.

2.2.5 Average length of training program which is given to customers during a loan cycle

option 1=0.25 option 2=0.5 option 3=0.75 option 4=1.00

1 0.75 0.75

158 0 0.75 0.75

Clients undergo multiple trainings pre-disbursement by the Credit Officer and the Branch Manager. The terms and conditions are reinforced by the CO and BM on the day of disbursement.

2.2.6 Coverage of customers through training under Financial Education module


1 1 1

158 0 1 1

All clients undergo the pre-disbursement trainings. However, it was noticed during client interactions that the clients lacked sufficient knowledge on the amount of interest/interest rate, insurance premium and the loan processing fees paid.

2.2.7 Updates accurate information and loan data of customers to

option 1=0 option 2=0.25 option 3=0.5

1 1 1

158 0 1 1

The data is share with the Credit Bureaus every Monday and 1st of every month. Due to migration of the system from Delphix to Mifos, the system incorrectly

36

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MFI Self- Reported

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Practice Score




Count of complaint

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Validated

Score CBs as per prescribed cycle

option 4=0.75 option 5=1.00

reflects outstanding amount of clients who have already repaid the loan/repaying the loan regularly. The branch staff are instructed to share details of such clients on a weekly basis with the finance team. However, this error is not rectified for clients who have repaid their loans and dropped out of the system.

2.2.8 Takes written customer consent for sale of non-credit financials products or other non-financial products

option 1=1.00 option 2=0 option 3=0.25 option 4=0.50 option 5=0.75 option 6=1.00

1 1 1

158 0 1 1

The MFI does not offer non-credit products.

2.2.9 Coverage of clients through livelihood training or other development programs/inputs


2 1 0.5

The financial literacy program covered 2000 beneficiaries and 2 clients were covered under skill development training provided by Chaitanya.

158 0 0.5 0.5

Financial literacy and skill development trainings were conducted in association with RUDSETI for some clients as well as non-clients in the area of operations of Chaitanya (limited to Dhadwad area). Chaitanya does not monitor the number of clients who have benefited. The total number of beneficiaries of the financial literacy program was 2000 and 5 for the skill development training, of which 2 were Chaitanya’s clients.

37

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Score

3. I

nst

itu

tio

nal

Pro

cess

3.1

HR

3.1.1 Recruitment policy of MFIs provides for necessary minimum qualification of field staff


1 1 1

24 0 1 1

The institution's recruitment practices require that the BM is a graduate and the CO has completed higher secondary education. However, in deserving cases this was relaxed and even candidates with matriculation were considered. All the BMs and COs who were interviewed during the field visit met the minimum qualification criteria.

3.1.2 Company has a comprehensive training manual for the field staff


1 1 1

24 0 1 1

All staff undergo an induction training, which includes 4 days of detailed classroom training. Policies and procedures are reinforced by means of presentations, lectures and role plays. During training the following topics are covered - Chaitanya's mission, about microfinance, field processes, FPC and client protection principles, risk mitigation, basic finance and roles and responsibilities of the staff.

3.1.3 Training module for the field staff includes Industry code of Conduct


1 1 1

24 0 1 1

Induction training for field staff includes a session on the Chaitanya's Fair Practices Code which draws from RBI's fair practices code and the customer protection principles which draws from MFIN's code for customer protection. All staff could recollect the training they received on FPC.

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3.1.4 Training module for the field staff has focus on appropriate behaviour towards customers


1 1 1

24 0 1 1

The training on FPC and the customer protection principles have clear instructions on appropriate behaviour towards clients.

3.1.5 Training module for the field staff has focus on appropriate recovery practises


1 1 1

24 0 1 1

Training on appropriate recovery practises including instructions on timings, prohibited behaviour at the time of collection etc. are part of the training. The Fair Practice Code of Chaitanya prohibits undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. by the field staff for the recovery of loans.

3.1.6 Training module for the field staff has focus on protection of customer's personal and financial information


1 1 1

24 0 1 1

Privacy of client data is covered during sessions on the FPC and the client protection principles. In addition, the field operations policy instructs staff to "safeguard client's information, allowing disclosures and exchange of relevant information with authorized personnel only, and with the knowledge and consent of clients." The field staff during interviews acknowledged that they were trained to protect client's personal and financial information.

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3.1.7 Training module for the field staff has focus on assessment of client's income, cash flows and indebtedness


1 1 1

24 0 1 1

During the field process modules of the induction training, field staff are trained on income assessment techniques and determining a client's repayment capacity. This is followed by a session on finance basics.

3.1.8 Average length of training given to a staff in one calendar year

option 1=0.25 option 2=0.5 option 3=0.75 option 4=1.00 1 1 1

24 1 1 1

All staff undergo induction training at the time of joining. Monthly meetings are conducted at the regional level during which audit issues and other gaps are discussed and orientation or training is provided to the staff by the Regional manager or the Branch Manager.

3.1.9 Percentage (%) of field staff covered under training programs every year are

option 1=0.25 option 2=0.5 option 3=0.75 option 4=1.00 1 1 1

24 0 1 1

All staff attend the monthly meetings conducted at the regional level. In addition, hi-potential training is conducted for the selected Credit Officers who are being prepared for a higher role.

3.1.10 Incentive structure of field staff provides for service quality


2 2 0

Service quality is not part of the monthly incentive structure of field staff.

24 0 0 0

Field staff receive monthly incentives depending on the following parameters: business development, planning, process adherence and crisis handling. Service quality is not part of the monthly incentive.

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Score

3.2

Co

mp

lain

t R

ed

ress

al S

yste

m

3.2.1 Every complaint is recorded and a log is maintained at branch/region/head office


1 1 1

1 1

Clients can register their complaint either by calling at the toll free number or by contacting the field staff. A log is maintained for the complaints registered at the toll free number and shared with the management and the Board. Some of the clients were not aware of the toll free number. Most clients said that they would contact the field staff or visit the branch to register their complaint.

3.2.2 The Redressal system has at least 2 levels of escalation protocol


1 1 1

1 1

As per the grievance redressal policy, the client can approach the Branch Manager to register their complaint and if it is not addressed adequately, the clients can contact the Regional Manager, followed by calling on the toll free number. If the client fails to get resolution from Chaitanya, they can approach AKMI and finally RBI.

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Score

3.2.3 MIS of Redressal system at least captures client information, nature of complaints, action taken and turnaround time on a monthly basis


1 1 1

1 1

The excel format captures client details including name, contact number, apart from the details of the complaint, action taken, status of complaint, client satisfaction, date of resolution and the resolution time. The GRO monitors the report and the complaints on a weekly and monthly basis.

3.2.4 MIS of Redressal system generates periodic reports on complaints received and handles and shared with the Board


1 1 1

1 1

Details of the complaints are shared with Board every quarter and serious unresolved complaints (if any) are discussed during the meeting.

3.2.5 Has a dedicated toll free no to register complaint

option 1=0 option 2=1 1 1 1

1 1 The MFI had a dedicated toll free number to register the complaints, which is printed on the loan card.

3.2.6 Offers outbound calls to collect customer feedback/complaint


1 1 1

1 1

After the complaints are addressed outbound calls are made to the client to check if it has been addressed. The grievance officer also makes outbound calls to check whether the client paid any commission and to check the loan purpose.

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3.2.7 Complaints are resolved and disposed within a Turnaround Time as per the company’s policy

option 1=0.25 option 2=0.5 option 3=0.75 option 4=1.00

1 0.75 1

The Customer Grievance Redressal policy states that all complaints will be solved within 7 days of getting registered.

1 1

The Customer Grievance Redressal policy states that all complaints will be solved within 7 days of receipt. All complaints were resolved within the stated TAT.

3.3

Au

dit

an

d C

om

plia

nce

3.3.1 Has an Internal Audit Team


1 1 1

1 1

The Audit team is led by the Audit Head; 16 Audit Officers report to 4 Audit Managers. The audit officer audits 60 repayments every month and covers all Credit officers at least once within 2 months. A branch is audited approximately 10 times a year and surprise audits are conducted as per the requirements.

3.3.2 Has a detailed Audit Manual


1 1 1

1 1

The MFI has a detailed audit manual which contains details of the field operations audit ; it includes instructions on vetting the loan application process, appraisal, disbursement, repayment process, training process etc.

3..3.3 Has designated Compliance Officer


1 1 The Company Secretary is the Compliance Officer in the MFI

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3.3.4 Compliance Officers approval is necessary for all product launches/product and process changes


1 1 0

The approval of Compliance officer is not necessary for all product launches/product and process changes.

0 0

The Compliance Officers’ approval is not required for product launches.

3.3.5 Periodicity of Internal Audits

option 1=1 option 2=0.5 option 3=0

1 1 1

1 1

The internal department audits the branch field operations on a monthly basis. A third party conducts the F&A audit of all the branches separately. Duly filled audit forms for the COs were seen in the branches.

3.3.6 Rotates the Statutory Auditor (individual auditor after 5 years, and audit firm after 10 years)

option 1=0 option 2=0 option 3=1

1 1 1

1 1

Appointment and Rotation of auditors are as per Section 139 of the companies Act 2013, which stipulates that the institution has to mandatorily rotate their auditors once their auditor has held office as an auditor for a period of 5 years for individual and 10 years in case of an audit firm.

3.4

Bo

ard

3.4.1 Management submits a compliance (CoC/FPC/RBI Directions) report to Board on periodic basis


2 2 0

A report on compliance with the Fair Practice Code is not submitted to the Board on periodic basis.

0 0

Report on compliance with the Fair Practice Codes are not submitted to the Board.

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3.4.2 Management submits a Customer Redressal report to Board on a periodic basis


1 1 1

1 1

Detailed customer grievance reports are submitted to the Board every quarter.

3.4.3 At least 1/3rd of the Board of Directors are independent


1 1 The Board has 2 Independent directors; total Board strength is 6 members

3.4.4 Has Audit Committee of the Board with an independent director as Chairperson


1 1 1

1 1

The Audit Committee of the Board is chaired by an independent director.

3.4.5 Has at least one women director


0 0 No woman director has been appointed on the Board

3.4.6 Has a Board approved Risk Management Framework


1 1 1

1 1

Chaitanya has a Risk Management Policy which contains framework on credit approval, operational and systematic risks. It highlights the overdue follow up and framework escalation of overdue loans.

3.4.7 Board approved internal exposure limits have been fixed to avoid any undesirable geographical concentration


1 0 1

1 1

Board monitors concentration risks and sets limits accordingly. For the four districts that contributed 60% to the portfolio, the Board instructed the management to reduce the share to 50%.

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3.4.8 Has written and Board approved curative debt restructuring policy to address the problems of genuine hardship of borrowers


1 1 1

1 1

In case of genuine default, Chaitanya has provision for rescheduling the loans and it is worked out based on the severity of the situation. A repayment moratorium of upto 30 days or rescheduling up to 10 instalments or even principal amount can be rescheduled and the interest amount can be foregone by the company. If the default is due to a severe problem arising out of a health issue or natural calamity which has impeded the client’s ability to earn, then the loan amount is waived by the company and no loans are given in future to the client.

4. T

ran

spar

en

cy

4.1

We

bsi

te

4.1.1 Displays on website full details of all loan products offered, including interest rates


1 1 1

1 1

Details of all the products i.e. JLG, gold Loans and two wheeler loans such as the loan sizes, interest rate, loan processing fees, insurance fees and repayment frequency are disclosed on the website

4.1.2 Displays on website non-credit financial products offered (if any) and applicable charges in detail including insurance premium collected

option 1=0 option 2=0 option 3=1

1 1 0

Non-credit financial products are not offered by the MFI.

0 0

Non-credit financial products are not offered by the MFI.

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4.1.3 Displays on website Client Grievance System


1 1 1

1 1

The systematic procedure for handling customer grievances and the contact details of the Grievance Redressal Officer and the levels of escalation to be followed in case of client grievance are all displayed on the company's website.

4.2

CIC

s

4.2 Complete data is shared with all CICs having a functional MFI Bureau on a weekly frequency


1 1 1

1 1

Data is shared with the 4 CICs on a weekly basis. Acknowledgement mails were seen for the month of January, February and March.

4.3

Qu

arte

rly

Dat

a R

ep

ort

ing

4.3 Quarterly data reporting to MFIN MicroMeter in last 4 quarters


2 2 2

2 2

The data was reported to MFIN in the past 4 quarters from April 2015 to March 2016.

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Score

4.4

An

nu

al D

ata

4.4 Annual data reporting to MFIN Microscope for FY 15-16


1 1 1

1 1

Chaitanya reports pricing data to MFIN for all its products.

4.5

Pri

cin

g D

ata

4.5 Reports pricing information for all loan products to MFIN


1 1 1

1 1

Chaitanya regularly reports pricing information to MFIN.

Annexure 2: Details of Outbound Calls (For all 5 client calls)

Questions Client 1 Client 2 Client 3 Client 4 Client 5

Branch Ajjampur Jagalur Jagalur Hosadurga Ajjampur

Client Name Gayatri Akkamma Bhagyamma Vinodamma Padmamma

Centre Name

Issue (as per records)

The customers asked for loan in 2nd cycle but the Credit Officer delayed to give out the loan. Hence called to talk to the Branch Manager.

The client called on behalf of Lalitamma whose husband died but the insurance amount was delayed.

The client called to complain about the delay in MTL meeting as the Credit Officer had not arrived till 7 and they did not know where he was.

The client called to complain about the delay in Loan Check meeting. The credit officer informed to come by 5 pm but did not reach till 5:41 pm.

The client called to complain about the delay in meeting conducted for the purpose of loan application. The credit officer informed to come by 11 am but did not reach till 12:45 pm.

Action Taken (as per records)

That branch manager said that the customer had some problem in the last loan repayment time so now a day's they hold that customers.

The branch manager told that he will give the client’s husband insurance amount next month.

The credit officer reached the centre at 7:15.

The branch manager said that he was on the way and the meeting was conducted at 6 o’clock

She asked the branch manager’s number which was given to the customers.

Did you register the complaint? If not, who did?

Yes Yes, on behalf of Lalitamma

No, did not register the complaint on call.

No, did not register the complaint.

No, did not register the complaint. The number belongs to Renukamma

Did the person listen to your complaint? What did the person tell you about resolving the complaint?

Yes. Centre could not be formed and loan cannot be given to her.

Yes. The person said that a bank account is required to get the insurance amount and some paperwork had to be done.

Not applicable Not applicable Not applicable

What happened after that?

No centre was formed.

Required paperwork was done and the insurance amount was received.


49

Was your issue resolved? In how much time was it resolved?

Yes. After 1 or 2 meetings (around 15 days) the complaint was resolved.


Were you satisfied with the resolution provided to you?

Yes Not applicable Not applicable Not applicable

Did anyone call to check if you were satisfied with the resolution provided?

The field staff visited to check if the resolution was provided.


Are you still a client of Chaitanya?

No Yes Yes Yes

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Annexure 3: Details of Household Visits

Household Visit 1

Name of the Client: Shanthamma Obalesh

Loan ID: 291020

Centre Name: Muddapur Hosahatti-01

Branch Name: Jagalur

Number of household members: 6

Number of dependant members: 4

Source of Income: Labour work at construction sites, farming

Land size holding: 3 acres (dry land)

Crops cultivated: Cotton, Maize

Loan Amount: Rs 15,000 (1st cycle) Rs 50,000 (2nd cycle)

Purpose of Loan: Agriculture, House repair (2nd cycle)

Loan from other MFIs/Moneylender/Relatives: None

Shanthamma had taken the loan in 2nd cycle to repair her house for which she spend more than

the loan amount. The remaining amount she got from her earnings from agriculture. She also

works as a construction worker to meet her expenses.

Household Visit 2

Name of the Client: Shankaramma Kallesha

Loan ID: 99873

Centre Name: Bisthuvalli-02



Number of dependant members: 1

Source of Income: farming, driving

Land size holding: 3.5 acres (dry land)

Crops cultivated: Maize

Income: Rs 80,000 per annum

Monthly Expenses: Rs 4,500

Purpose of Loan: Repayment of previous loan

Loan from other MFIs/Moneylender/Relatives: Rs 25,000 (Relatives)

Shankaramma’s husband worked as a school bus driver. Their got admission in the same school

and they have to yearly pay Rs 15,000 as school expenses. She had taken the loan to repay her

relatives from whom she had borrowed Rs 25,000.

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Household Visit 3

Name of the Client: Nagamma Mallikarjuna

Loan ID: 100278

Centre Name: Bisthuvalli-02



Source of Income: farming, dairy activities, carpentry

Land size holding: 4 acres (dry land)

Crops cultivated: Vegetables, Banana

Purpose of Loan: Repayment of previous loan

Loan from other MFIs/Moneylender /Relatives: Spandana Sphoorty Financial Ltd. (Rs 30,000)

Loan from Banks: Rs 45,000 (Gold loan from Cananra Bank)

Nagamma had taken loans from Spandana MFI as well Cananra Bank

1. Household Visit 4 Name of the Client: Sadika Loan ID: 284715 Centre Name: Mathodu - 02 Branch Name: Hosadurga Been with Chaitanya since 3 years


Number of dependent members: 2 including 2 kids aged 5 and 6 years.

Source of Income: Husband is an auto driver and has taken an auto loan.

Land size holding: 8 acres

Crops cultivated: Ragi

Purpose of Loan: Repayment of previous loan in partnership, who pay them for half of the

produce. Client was not aware of the income from this source.

Loans from other MFI – Asirvad took Rs20, 000. Has paid 14 instalments of the 2 year loan,

repayment is fortnightly.

After deduction of loan instalment, left with Rs8, 000 surplus. Household expenses – Rs3, 000.

2. Household Visit 5 Name of the Client: Deviramma Loan ID: 267690 Centre Name: Doddayanapalaya - 02 Branch Name: Hosadurga Been with Chaitanya since 3 years Number of household members: 6 Client, her spouse, mother-in-law, father-in-law, and 2 sons aged 21 and 26 respectively. Source of Income: One son is a driver and the second son works in a factory and does welding work after the factory. Purpose of Loan: Client took the loan to buy the welding machine equipment. Loans from other MFI- SKDRDP borrowed Rs40, 000; outstanding – Rs.20, 000. No other loan in the household. Monthly income ranges between Rs15, 000 to 20,000 and expenses are around Rs5, 000.

52

Annexure 4: Evidences

S. No. Item details Go back to report

1 Display at Branch

a) Ajjampura

b) Jagalur

Click here

53

c) Hosadurga

54

d) Kittur

55

2 Loan Card

Click Here

3) Flat interest rate in loan cards

Click here

56

Annexure 5: Observation memo

Evaluator (Agency & Team Name)

Agency: Micro-Credit Ratings International Limited Team members: Sana Zehra and Mrinalini Bhargava

MFI Name Chaitanya India Fin Credit Pvt. Ltd.

Evaluation Purpose Evaluation of compliance with the Industry Compliance Index

Date of Visit 6th – 10th June, 2016

Places Visited (branches)

Karnataka – Ajjampura, Jagalur, Hosadurga and Kittur

Observation Relevant provisions of RBI Regulations / COC against which non-compliance observed

MFI’s comments Evaluator’s conclusion

Inaccuracies in client data in the system and therefore also in the data shared with the Credit Bureaus: One year ago Chaitanya migrated client data from the Delphix to the Mifos system. Due to some system errors the outstanding balance for the clients was not correctly updated and the system shows a small amount as outstanding for the closed loans. The branch staff is supposed to share the information of such clients with the accounts department every week as this information is reflected in the demand sheet for the new loans. However, this was not being done regularly for clients. Also, when dropout clients try to avail loans from other MFIs, they get rejected due to the 2 MFI criteria as Chaitanya shows up as one if the MFIs even though the client has actually repaid the loan.

MFIN CoC: MFIs must share complete client data withall RBI approved Credit Bureaus, as per thefrequency of data submission prescribed bythe SRO

As of July 1, 2016, the number of such inaccuracies (called hanging records) is 1215. Subsequent to this, we have corrected these records also. Therefore from the next month, all such inaccuracies should be largely corrected

This will be rectified by July end.

UID not updated in the system despite being

We have taken some time to update UID

Instructions will be issued

57

provided by the client/collected by the staff: At the branches: It was observed in some of the loan files that the branch staff had missed to update the details of the UID in the system despite the document being provided by the clients. Number of cases: 7 Client loan ID: 87910; 87900; 1588224; 307909; 307715; 307893; 291940

and VID details of customers as we were migrating from Delphix to MIFOS IT system. Our numbers have been improving since March 2016. As of May, Chaitanya had a 87%(HM) seeding of UID and 90%(HM)seeding of VID for loans disbursed in May, which is more than the required levels as per MFIN.

to concerned staff to record details accurately.

Communicates the flat interest rate verbally and in written: Although the loan agreement mentions the interest rate in flat terms, clients are trained on the monthly flat interest rate. In some of the passbooks, the flat interest rate was updated by the CO. Centers: Shivani 2, Shivani 7, Narayanpura-7 (Ajjampur Branch)

We put the reducing balance interest rate in the loan agreement. It is true that clients are trained in monthly flat interest rate. This is done more from an understanding for the client. Since every client is given a repayment schedule, we do not see it as a problem communicating to the client in monthly flat interest rate.

Chaitanya should communicate the declining interest rate only both verbally and in written

Bank passbook was taken as secondary id in lieu of ration card. Number of cases: 1 Client Loan Id: 250068

MFIN’s directives on KYC state that for all loans disbursed post October 1, 2015 Voter ID or Aadhar would be the primary id and Ration card or MNREGA would be considered as secondary ids.

For this client, we checked the system, although bank passbook was taken, for KYC entry, VID and Ration Card was taken as primary KYC documents

This was an exception.

Chaitanya does not give “MFIs Commitment to Customers” document to the clients at the time of disbursement.

MFIN CoC stipulates that “MFIs Commitment to Customers” document to the clients as a one-page document.

Yes, we do not give a separate “commitment to customers” document. The client receives a loan agreement copy where our commitment to the

Chaitanya wasn’t aware that they have to share this document.

58

customers are specified. Also when we take their application, we give a receipt stating that within 30 days we will inform if loan is approved or rejected.

Credit policy does not limit the number of loans/ loan amount that a client can borrow from Chaitanya:Chaitanya offers loans using both group and individual lending methodology. Apart from group loans, Chaitanya offers gold loans, two wheeler loans and housing loans. Client Vishalamma (Client ID: 2641; loan no.12653 for JLG loan and loan no. 175965 for mid-term loan) and her husband NK Viresh Hanumanthappa (2-wheeler loan client ID: 687407; Gold loan pledge record no.: oj7h-ot4s-uogo-cz2h; Housing loan: Documents not available with client) of Jagalur had availed all the four loans between them including a mid term loan.

Risk of over-indebtedness and inadequate credit appraisal checks.

Yes, as of now it is not there. This will be introduced by end of August 2016 after modifying the credit policy and getting an approval from the board

Policy will be modified to: Client can have either JLG or secured loan.

Chaitanya displays the interest rate in declining terms for all its products in local language on a printed A4 sheet; however, it does not display the effective rate. Details of the loan processing fee and the insurance premium were displayed in the Hosduraga branch.

Indicator 1.1.1 Displays the basis and effective rate of interest rate charged for all loan products prominently in vernacular language.

We interpret effective interest rate as annual interest rate calculated on a reducing balance basis. We do add the processing fee to the interest rate and calculate the effective interest rate as this is not explicitly stated anywhere that this needs to be done.

Should also display the insurance premium and loan processing fees.

The stepwise institutional grievance redressal mechanism was displayed in local language in three of the

Indicator1.1.2 Displays the Company Grievance Redressal mechanism followed by

The company grevience redressal mechanism was displayed in the local

Evidence attached in the report.

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four visited branches and in English at all four branches. It contains details of the branch address, regional office redress, Chaitanya' s toll free number and AKMI's toll free number. The Company Grievance Redressal mechanism was not displayed in local language at Kittur Branch. Non-compliant case: 1 branch (Kittur) out of 4 branches

the company in vernacular language.

language at Kittur branch also. However, the print might have been light. We have rechecked this and based on our check, reporting this.

The contact details of Mr. Guruswamy, the Grievance Redress Officer (GRO) was displayed in three of the four branches visited by the team - Ajjampur, Jagalur and Hosadurga and in English in all the four branches. The contact details of Mr. Guruswamy, the GRO, was not displayed in local language at Kittur Branch. Non-compliant cases:1 branch (Kittur) out of 4 branches

Indicator 1.1.3: Displays Contact details of Company's Grievance Redressal Officer in vernacular language

The contact details of GRO was displayed in local language at Kittur also.


Chaitanya does not have a policy on displaying the MFIN toll free number in the branches. None of the branches had displayed the toll free number on the notice boards. Non-compliant cases: 4 branches (Ajjampur, Hosadurga, Jagalur, Kittur)

Indicator 1.1.4 Displays MFIN Toll Free No. for registering client grievances/disputes

Yes, we do not have a policy of displaying MFIN toll free number. This is because we today have an AKMi toll free number, which we think is sufficient enough.

Has agreed to add the MFIN number.

Chaitanya instructs branches to display the contact details of the RBI Regional Office in the branches. The contact details of the RBI Regional Office was displayed only in two of the four branches - Ajjampura and Hosdurga, albeit in English. Non-compliant cases:4 branches (Ajjampur, Hosadurga, Jagalur, Kittur)

Indicator 1.1.5 Displays contact details of Regional RBI office in vernacular language

Yes, we have displayed the contact details of the RBI regional office in English. The contact details of the RBI regional office was displayed in Kittur and Jagalur


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The institutional Client Protection Principles, which draws from MFIN's Customer Protection Code, were displayed in local language at all the branches except Kittur. Non-compliant cases: 1 branch (Kittur) out of 4 branches.

Indicator 1.1.6 Display of Client Protection Principle (as mentioned in Industry CoC ) in vernacular language

The client protection principles was displayed at Kittur


Although in most of the loan cards and in all loan repayment schedules the interest rate in declining terms was mentioned, the interest rate in flat terms was mentioned in the loan cards of three centers. The flat interest rate is communicated to the clients. During client interactions, most were unable to recall or point out the rate of interest written on the cards. Although clients could recollect the approximate fees paid for availing the loan, they could not recall the break-up of the loan processing fee (LPF) and insurance fee. Cases: 25 of 158 loan cards

Indicator 1.2.3 Accurately displays the basis and effective rate of interest charged for the loan product given

We will correct this Agreed.

The contact details of the MFIN Toll Free Number and GRO were not mentioned in any of the Loan Cards. Communication of the details of the GRO's contact details in the loan card was discontinued after the introduction of the MFI's toll free number in the financial year 2014-15. None of the clients were aware about the contact details of the GRO or MFIN Toll free Number. For new disbursements, stickers with MFIN numbers will be pasted on the loan cards. None of the loan cards had the contact details of Mr. Guruswamy, GRO and the

Indicator 1.2.10 Displays the contact details of Grievance Redressal Officer of the Company and MFIN Toll Free Number for registering client grievance/ disputes

We have taken the AKMI toll free number as equivalent to MFIN toll free number. The GRO number is the company’s internal toll free number. The GRO’s name has been mentioned in the loan card.

Has agreed to mention the MFIN number.

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MFIN Toll free Number. The loan cards had been stamped with the branch office number and had details of AKMI’s and MFI’stoll free number.

There is no clause in the loan agreement regarding the institution's commitment to transparency and fair lending practices.

Indicator 1.3.8 Statement articulating commitment to transparency and fair lending practices in vernacular language.

Yes, there is no clause in the loan agreement.

Agreed.

There is no declaration in the loan agreement which states that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance Redressal.

Indicator 1.3.9 Has a declaration that the MFI will be accountable for preventing inappropriate staff behaviour and timely grievance Redressal.

Same as above Agreed.

There is no declaration in the loan card stating that recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.

Indicator 1.3.11Has a declaration that recovery of loan given in violation of the regulations should be deferred till all prior existing loans are fully repaid.

Same as above Agreed.

The loan disbursal note (LDN) mentions the loan disbursal amount but the annualised rate of interest is not mentioned in the LDN.

Indicator 1.5.1 Reflects the amount of loan sanctioned along with the terms and conditions including annualised rate of interest

The annualized rate of interest is mentioned in the loan agreement. We do not see a need for the interest rate to be specified in the LDN.

Observation changed to: no sanction letter is given.

Chaitanya does not take written consent of the client for any third party disclosure.

Indicator 2.2.3Takes written customer consent for any third party disclosure (privacy of client data)

Yes, not done Agreed.

Financial literacy and skill development trainings were conducted in association with RUDSETI for some clients as well as non-clients in the area of operations of Chaitanya (limited to Dhadwad area). Chaitanya does not monitor the number of clients who have benefited. The total number of beneficiaries of the financial literacy program was

Indicator 2.2.9Coverage of clients through livelihood training or other development programs/inputs

Did not understand Will share numbers for FY 15-16. Pending.

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2000 and 5 for the skill development training, of which 2 were Chaitanya' s clients.

Service quality is not part of the monthly incentive structure of field staff. Field staff receive monthly incentives depending on the following parameters: business development, planning, process adherence and crisis handling. Service quality is not part of the monthly incentive.

Indicator 3.1.10 Incentive structure of field staff provides for service quality.

The incentive structure takes into account process adherence which indirectly relates to service quality.

Will share the six-monthly incentive. Pending.

The Compliance Officer’s approval is not required for product launches. The approval of Compliance officer is not necessary for all product launches/product and process changes.

Indicator 3.3.4 Compliance Officers approval is necessary for all product launches/product and process changes.

Approval is required from the board. This change will be done

Agreed.

There is no policy/process regarding rotation of the Statutory Auditor.

Indicator 3.3.6 Rotates the Statutory Auditor (individual auditor after 5 years, and audit firm after 10 years).

Appointment and Rotation of auditors are as per Section 139 of the companies Act 2013.

Revised.

Observation: A report on compliance with the Fair Practice Code is not submitted to the Board on periodic basis.

Indicator 3.4.1 Management submits a compliance (CoC/FPC/RBI Directions) report to Board on periodic basis.

Not done till date, will start

Agreed.

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Annexure 6: Questionnaires

(For MFI Staff)

1. Name: 2. Branch; District: 3. Designation: 4. Date of joining: 5. Qualification: 6. Mobile No:

Client Identification Process:

a. How a new area is selected for the MF operations? b. Who has the authority to decide whether to enter a new area or not? c. How do you identify a suitable client? d. How are the groups formed? (SLG/JLG) e. What is the permissible group size for loan disbursement? (JLG/SHG)

Compulsory Group Training a. Are trainings provided to the group members? b. What is the duration of trainings provided to the client? c. Who conducts the training? d. Are members required to pay for CGT? If yes, how much?

Due Diligence

a. How is the income of the member/household arrived at? b. What local level verifications are done to know about the number of MFIs / sources from which

a client has availed the loan? c. Are verification checks done for the purpose for which the client needs to avail loan? (end use

of loan) If yes, how? d. Is due diligence copy attached with the client loan file?

KYC

a. Who fills the loan application form? b. What documents are collected from the client? c. How many KYC documents are collected from the client? (MFIN Standards: At least 2 KYC

documents are mandatory) d. Which KYC documents are mandatory? (MFIN Standard: UID/VID should mandatorily be

collected) e. Are the documents verified against the original? What do you do if the original document is not

available? f. What happens if a client has no valid KYC document?

Rate of Interest and other charges

a. How much interest rate is charged? Monthly and annually b. How much processing fees is charged for various loan products? Are receipts of the fee given to

the client? c. Structure of any other fee/charge security/collateral (cash or kind) associated with loan

products, collected by the MFI. If yes, give details.

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d. Do you issue receipt to customers for collateral/security received from them? e. Do you collect any charge/fee as penalty for delayed payment, pre-closure, absent/late at

meeting, etc? If yes, what is the amount? Insurance

a. What are the insurance charges for client and spouse? b. Are the spouse and client mandatorily covered for insurance? c. Do you issue receipt for insurance premium? d. What happens in an event of demise of client/spouse/co-borrower as per the policy? e. How much time does it take to settle an insurance claim? f. What are the reasons for delay in insurance claims settlement?

Third Party Products

a. Do you offer any pension product? Is it compulsory? b. What is the contribution for pension product? c. Is any receipt issued for the pension product? d. Do you also provide non-financial products (like, solar lantern, stove, cooker, mobile, etc.)? e. If yes, what are these products and at price do you made them available to your customers? f. Are these products voluntary in nature or linked/bundled with main loan product? g. Is the frontline staff incentivised to sell such products? h. How do you ensure that clients are not forced / coerced to buy such products? i. Have you ever come across any complaint from customer for coercion by staff to buy such

products? j. Is a valid receipt provided to customers upon sale of these products? k. Is the client in a group refused a loan, if she disagrees to avail a third party product? l. Is the written consent of the customer taken for sale of third party products? m. Are there after sales complaints received for these products? How are these complaints

resolved?

Credit Bureau

a. Are Credit Bureau (CB) reports generated for all the loans to be disbursed? b. Are CB reports generated in the Branch or done centrally in the head office? c. Is the CB report copy kept in the loan files of each client? d. CB Reports are drawn from which Credit Bureau? e. What is the validity of a CB report? (MFIN standards: 15 days from the day of disbursement,

sample check with a file case to be done) f. Are new CB reports generated in case the validity of CB report expires before disbursement? g. CB reports are generated from which CIC? h. Who is responsible for updating the data in the Common Data Format (CDF)? i. Once a loan is sanctioned, when is the data submitted to credit bureau? j. Which KYC document is referred while updating the CDF? k. Is there a declaration of privacy of client data in the loan application form?

Loan Disbursement Process

a. Where is the loan disbursed? Centre/Branch/Any other location b. Who all from the MFI should be present during loan disbursement? (As per RBI guidelines; Any

loan should be disbursed in presence of at least 2 officials from the MFI)

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c. Is the spouse/any other family member of the client required to participate in the disbursement process?

d. How is the loan disbursed? Cash/account transfer/prepaid cash/any other e. Do you provide a copy of loan agreement to all the borrowers for all types of loans? f. Are loan cards given to all the customers? g. The loan files are maintained in the branch or are centrally sent to the HO?

Loan Recovery/Collection

a. Did the MFI provide options for repayment of the loan– weekly, fortnightly or monthly? b. Where is the collections done? Centre/Branch/Any other c. Are all group members required to be present during collections? d. Who does the collections? (Is there any other MFI staff other than the disbursing officer/any

collection agent involved) e. Are receipts given to the customers for each instalment? f. What measures are taken in case a client defaults in any instalment? g. Does the group bear the responsibility in case a member defaults? If yes, for how many

instalments? h. In case there is demise of a customer, are the instalments suspended immediately? i. Under what circumstances does a household visit to the client made for instalment collection? j. Are the incentive structures of the MFI staff based on the collections made?

Staff Related

a. No of trainings attended: b. Duration of trainings: (in a calendar year) c. Topics covered in training sessions: (as per ICI following areas to be covered-COC, client

behaviour towards customers, recovery practices, privacy of data, due diligence of client income)

d. Where was the training conducted? e. Are there any incentives on service quality?

Grievance Redressal

a. What are the methods of grievance redressal followed by the company? b. Are grievance redressal numbers mentioned in the loan card? c. Are clients educated enough to report in case of a grievance? d. Are clients educated about grievance escalation matrix? e. Is there any compliant register available with the branch and is a log book maintained? f. Is the complaint data shared with the HO? If yes, on what frequency? g. What is the TAT for resolution of a complaint? h. Who is responsible for complaint resolution in the branch? i. Is there a log book available?

MFIN Toll Free Number

a. Is there a mention of MFIN Toll free number in the loan card? b. Are clients educated about MFIN Toll Free Number? Give details

Miscellaneous

a. What is the frequency of audit of a branch? b. Since last year, how many audits have been conducted in the branch?

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c. Do you collect any fees/penalty for delayed payment, pre closure of loan or for being absent or late for meetings? If yes, please indicate the amount

Financial Education Module

a. Is there any financial education module for the clients? b. Are all clients given this training? c. What is the duration of these trainings? d. Are customers charged for this module?

Livelihood Training

a. Are customers given any skills or livelihood trainings? Give examples b. How many customers are given these trainings?

Questionnaire (For MFI Clients)

1. Name: 2. Client ID: 3. Centre/JLG/SHG ID: 4. Branch: 5. Name of the MFI: 6. Mobile No: 7. Amount of credit availed: 8. Date of disbursement: 9. Purpose of the loan: 10. No of times loan is availed from the same MFI:

Loan Application Process

a. How are the group members selected for formation of the group? (SLG/JLG) b. Are CGT trainings provided to all the group members by the MFI? c. What is the duration of trainings provided? d. Who conducts the training? e. Are members required to pay for a training? If yes, how much? f. What is the permissible group size for availing a loan? (JLG/SHG) g. How is the income of the member/household arrived at? h. Were any verification checks done for the purpose for which the loan is availed? (end use of

loan) If yes, how? i. Who fills the loan application form? (directly by staff / non-staff) j. What documents were collected during loan application form filling? k. How many KYC documents were collected? Mention the documents collected l. Are the KYC documents verified with the original? m. Which language was used for communicating the terms of the loan?

Rate of Interest and other charges

a. How much interest rate is charged? b. How much processing fees was charged for the loan? Were the receipts of the fee given? c. Are there any other fees/charges/security/collateral (cash or kind) for loan products,

collected by the MFI? If yes, give details.

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d. Do you get receipt for collateral/security fee from the MFI? e. Is there any charge/fee as penalty for delayed payment, pre-closure, absent/late at meeting,

etc. collected by the MFI? If yes, what is the amount? f. Is the amount mentioned in any of the receipts different than the amount collected from

you? Insurance

a. What are the insurance charges collected from you? b. Are the spouse and client mandatorily covered for insurance? c. Do you get receipt for insurance premium? d. Have you been educated about insurance claims settlement?

Third Party Products

a. Have you taken any pension product? Was it compulsory? b. What is the contribution for pension product? c. Did the MFI issue a receipt for the pension product? d. Have you taken any non-financial products (like, solar lantern, stove, cooker, mobile, etc.)? e. If yes, what are these products and at what price have you purchased them? f. Were these products voluntary in nature or compulsory for availing the loan product? g. Was it compulsory to buy these products? h. Was a valid receipt provided to you by the MFI upon sale of these products? i. Is any written consent taken from you by the MFI for sale of third party products? j. Were there any complaints related to the product, post purchase? k. If yes, who resolved the complaint?

Loan Disbursement Process:

a. Where was the loan disbursed? Centre/Branch/Any other b. Who all from the MFI were present during loan disbursement? c. What extra charges apart from processing fees and insurance fees were collected? And how

much? d. Are any family members required to be present during loan disbursement? e. How was the loan disbursed? Cash/account transfer/prepaid cash card/any other f. Did the MFI provide the loan agreement copy? g. Were loan cards given to all the group members? h. Were you ever asked to sign on any blank form or paper?

Loan Recovery/Collection

a. Did the MFI provide options for repayment of the loan– weekly, fortnightly or monthly? b. Where are the collections done? Centre/Branch/Any other c. Are all group members required to be present during collections? d. Who does the collections? (Is there any other MFI staff other than the disbursing officer/any

collection agent involved) e. Are receipts given for each instalment? f. Have you ever defaulted on any instalment? g. What measures are taken by the MFI and your group members in case of default? h. Has the MFI staff ever visited your house after loan disbursement? i. Did any MFI staff visit your house at odd hours for collection of instalment or at work place?

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Grievance Redressal

a. How do you register a complaint with the company, if any? b. Are grievance redressal numbers mentioned in the loan card? c. Is there a mention of MFIN Toll free number in the loan card? d. Have you been educated about MFIN Toll Free Number e. Is there any compliant register available with the branch? f. What is the TAT for resolution of a complaint which is communicated to you? g. Who is responsible for complaint resolution in the branch? h. Have you been educated about escalation matrix for complaint resolution?

Financial Education Module

a. Is there any financial education received by you apart from knowledge given about MFI products?

b. What was the duration of these trainings? c. Were you required to pay any charges for these trainings?

Livelihood Training

a. Are customers given any skills or livelihood trainings? Give examples b. How many customers are given these trainings? c. Were you required to pay any charges for these trainings?

Miscellaneous

a. From how many MFIs have you availed the loan? b. What is the total amount of loan availed? c. Any instance of staff misbehaviour at the time of loan sanctioning, training,

disbursement or during collections? d. What was the moratorium period provided for the loan sanctioned?

Outbound calls to the customers who has registered a complaint

a) Was the complaint registered directly by you or someone on your behalf? b) Give details of the complaint c) What were you informed for the resolution of the complaint? d) After how many days of registering the complaint, was the issue resolved? e) Were you satisfied with the resolution provided to you? f) If the complaint was not resolved, what did you do? g) Did anyone called or visited to check whether you were satisfied with the resolution provided? h) Are you still a customer of the MFI?