Microfinance Code of Conduct Compliance Assessmentchanura.com/.../chanura_coca-report-chanura-2015.pdf · Microfinance Code of Conduct Compliance Assessment Assessment done by: Rahul

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Microfinance Code of Conduct

Compliance Assessment

Assessment done by: Rahul Bist

Chanura Microfin Manipur (CMM)

November 2015

Composite COCA Score: 83%, Very Good level of

adherence

Rationale Chanura receives a “very good” overall score on account of

its client centric policies; processes to ensure client

protection and good conduct of its staff. Chanura has a

well-defined fair practice code and its staffs are aware of it.

Chanura also has been able to develop loyal and satisfied

client base despite not being able to disburse large loans.

However, Chanura needs to develop an IT policy to ensure

digital data security, needs to strengthen audit function and

some other policies as discussed in the report.

Highlights � Chanura has a comprehensive fair practice code which

has been effectively disseminated across its staff and is

also observed in field operations.

� Chanura does not accept members who are members of

any other MFI.

� Clients of Chanura were observed to be happy and

satisfied with long histories with the organization.

� Chanura offers financial products to meet other lifecycle

needs of clients. Its ‘emergency loan’ is interest free.

Areas of improvement � Chanura needs to document an IT policy to strengthen

digital data security.

� Chanura should issue acknowledgement letter for loan

application and sanction letters for its non-IGL products.

It should also issue receipts to clients in case of pre-

settlement of loan.

� Chanura can strengthen its internal audit to cover all

processes and all aspects of fair practice code.

� Chanura needs to improve its grievance recording

process to make it more effective.

Score on Dimensions

COT=Client Origination and Training, LP=Loan Pricing, LA = Loan Appraisal,

CDS=Client Data Security, SC=Staff Conduct, CRF=Client Relationship and

Feedback, ISV=Integrating Social Values into Operations

Score on Parameters

A= Approval, Do=Documentation, Ds=Dissemination, O=Observance

ADDO © Prime M2i Consulting Private Limited

83%

Code of Conduct Assessment Compliance Assessment Tool This tool requires scores to be assigned on the seven Code of Conduct dimensions – Client Origination, Loan Pricing, Loan Appraisal,

Client Data Security, Staff Conduct, Client Relationship and Feedback and Integrating Social Values into Operations, across the four

parameters – Approval, Documentation, Dissemination and Observance. The seven dimensions have been drawn from a review of the

norms prescribed for MFIs including industry’s code of conduct, fair practices’ code of RBI and CGAP’s client protection principles (Smart

Campaign). The COCA tool also specifically assesses the MFI for compliance against the RBI’s guidelines and scores it as well. The scores

on the COCA indicators are then scaled down in proportion to the score received in Regulatory Compliance. The methodology followed for

this assessment is presented in Annexure 2 and the framework of the tool is presented in Annexure 3.

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Disclosure

M2i has not been engaged in any assignment of advisory, capacity building or of consulting

nature with Chanura Microfin Manipur in the last one year. Further, none of M2i’s staffs or

their relatives is represented in the Board of Chanura Microfin Manipur or related

institutions.

Code of Conduct Compliance Assessment – Chanura

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Section 1: Scores1 and facts

Code of Conduct dimensions2 Maximum Obtained %

Client Origination and Targeting 24 22.3 93%

Loan Pricing 15 13.6 90%

Loan Appraisal 16 10.9 68%

Client Data Security 8 6.0 75%

Staff Conduct 35 31.8 91%

Client Relationship and Feedback 26 19.4 75%

Integrating Social Values into Operations 14 10.5 75%

Total 138 114.5 83%

RBI’s Directions 12 12 100%

Compliance parameters Maximum Obtained % Approval 25 20.0 80%

Documentation 31 26.0 84%

Dissemination 31 26.0 84%

Observance 51 42.5 83%

Total 138 114.5 83%

MFI’s profile – September 2015

Name of the MFI Chanura Microfin Manipur (CMM or Chanura)

Legal form Society

Operational Head Mr P K Khuman

Year of starting microfinance 2007

Branches 5

Operational area Manipur

Total number of staff involved in

microfinance 38

Visit of the Assessment team 20 November 2015 – 24 November 2015

Correspondence address Chanura Microfin Manipur Hodam Leirak Machin Airport

Road, Opposite Tiddim Oil Pump, Imphal West-795001,

Manipur, Phone: +91-385-22445799

1The scores have been colour coded as follows. = Less than 41% (Very Weak); 41-60% (Weak); = 61-70%

(Reasonable); 71-80% (Good); 81-90% (Very Good); >90% (Excellent). 2Scores have been reduced by a factor of 0.92 to reflect overall achievement on regulatory compliance.


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Microfinance Methodology

Chanura uses Joint Liability Group (JLG) model for its lending activities. Chanura has only

women members, who are organized into groups of five. Three to eight such groups form a

centre. The members take joint liability of each other. In case a group fails to make good of any

delinquency, the centre as a whole has to take the responsibility for the repayment. The

disbursements are done at the branches and the collections are done in the weekly centre

meetings. In addition to Income Generation Loans, Chanura also offers other non-income

generating loans which are all JLG based.

Chanura is member of Sa-Dhan which is the industry SRO. Chanura is also member of credit

bureau, High Mark Credit Information Services. Chanura refers to credit bureau reports,

wherever it has overlap of operations with other MFIs, before lending to its clients.

Details of the loan products - 30 September 2015

Product Description Loan size* Interest

Rate

APR

(Interest

Rate and

Processing

Fees)

% in

portfolio

Income

Generation

loan (IGL)

Loans given to members of Joint

Liability Groups of women.

These loans are given for income

generation activities. Loan tenure

is 50 weeks.

Rs5,000 in first

cycle and up to

Rs15,000 in

subsequent

cycles.

26% pa,

reducing

balance

basis and

1%

processing

fees

28.5% 81.1%

To-up loan Second cycle onwards, clients

become eligible for this loan.

After 25 weeks of timely

repayment of IGL a client can

take a top-up loan (after consent

from all other centre members)

up to 50% of the IGL. Loan

tenure is 50 weeks.

50% of the

income

generation loan.

26% pa,

reducing

balance

basis and

1%

processing

fees

28.9% 0%

Emergency

loan

This loan is given for emergency

purposes such as funeral or

maternity. The loan is interest

free but 1% processing is

charged. The loan tenure is 25

weeks.

Maximum loan

amount is

Rs2,000.

No interest,

1%

processing

fees

3.9% 0%

Energy

loan

This loan is given to buy a solar

lamp or home lighting solution,

for which Chanura has tied up

with vendors. The loan tenure in

25 to 50 weeks depending on

loan amount.

Rs480-12,500

(cost of lighting

solution)

24-26% pa,

reducing

balance

basis and

1%

processing

fees

31.2% 18.9%

Biomass

Cook stove

This loan is given to buy a

smoke-free stove, for which

Rs1,910 (Cost of

stove)

24-26% pa,

reducing

30.8% 0%


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loan Chanura has tied up with a stove

company. The loan tenure in 25

weeks.

balance

basis and

1%

processing

fees

Notes:

1. APR has been calculated by taking the actual cash flow for each loan including principal,

interest and processing fee.

2. In September 2015, Chanura had no loan outstanding on top-up loan product and Biomass

stove product. Under Emergency loan the outstanding loan amount was Rs4,640.

Key facts and figures

Parameters 31-Mar-14 31-Mar-15 30-Sep-15

Number of JLGs 2,604 2,608 2,609

JLG Members 15,433 15,848 16,020

Active borrowers 4,226 4,803 3,885

Branches 5 5 5

States 1 1 1

Number of districts 4 4 4

Total staffs 40 40 38

Number of loans disbursed for the FY

ending 13,638 7,146 2,364

Amount of loan disbursed for the FY

ending (Rs mn) 71.0 73.8 36.3

Loan portfolio outstanding (Rs mn) 34.4 42.5 40.1

PAR-60 0 0 0

PAR-30 0 0 0

Yield on portfolio 24.5% 21.2% 27.9%

OSS 106.2% 106.5% 107.7%

RoA 1.5% 1.2% 1.7%

RoE 9.0% 8.9% 13.1% Source: Data Provided by Chanura


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Chanura Board Members – 30 September 2015

Name Profile

Ms Naorem Harimati

Devi

Ms Naorem is the Chairperson of the Board. She is MA in

Economics and also a Post Graduate in Manipuri dance. She is a

Lecturer of Manipuri Dance at Manipur University.

Dr. Konjengbam

Ibomcha Meetei

Dr Meetei is Vice-Chairman of the Board. He is an MBA and

PhD. He is Director of Institute of Cooperative Management,

Guwahati. Mr Meetei has 15 years of experience in Business

Management and Microfinance.

Mr Kh. P K Khuman Mr Khuman is the CEO of Chanura Microfin Manipur. He has 15

years of experience in rural development and 12 years in

microfinance. Mr Khuman is Bachelor in Arts by qualification.

Ms Wangkheimayum

Bimolata Devi

Ms Bimolata ia MA in English and B. Ed. She is the State Project

Officer, UNDP programme, Meghalaya. She has 10 years

experience in Social Development. Her focus area is women and

youth.

Mr Priyobratta

Gurumayum

Mr Gurumayum is the Branch Manager of North Eastern

Development Finance Corporation Ltd. (NEDFI) Imphal Branch.

He is the nominee member of NEDFI at Chanura. Mr

Gurumayum is an Engineer and a MBA by qualification.

Mr P Yaima Singh Mr Yaima Singh is a Masters in Commerce and has 20 years

experience in rural development and 10 years in microfinance. He

is heading an NGO called RAID.

Mr Kongbrailatpam

Bangkimchandra

Sharma

Mr Kongbrailatpam Bangkimchandra is MA in Sociology and is a

social worker. He is Secretary of Gandhian Institute of Rural

Development.

Ms Pichimayum Memmi

Devi

Ms Memmi Devi is a Social Worker and is one of the founder

members of Chanura.


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Section 2: Status of Regulatory Compliance

2: Observations

2.1 Compliance with regulations

Chanura complies with all the guidelines issued by RBI regarding priority sector lending

status of MFIs.

Chanura’s compliance with RBI guidelines for MFIs is presented below.

Chanura is a Society and its compliance is guided by the RBI’s Notification on Priority

Sector Lending - Targets and Classifications - RBI/2014-15/573

FIDD.CO.Plan.BC.54/04.09.01/2014-153 issued on April 23, 2015. It encompassed all MFIs

availing loans under priority sector from banks irrespective of their legal forms.

Capital requirement Being a not-for-profit organisation, Chanura does not have any mandatory compliance for

capital. However, as on 30th

September 2015, Chanura had total equity of Rs7.35 million

comprising of its General Fund.

Proportion of qualifying assets and income generation loans Chanura has been obtaining CA certificate for its qualifying assets. As per CA’s certificate

issued on 11th

November 2015, Chanura had 88.7% of its total assets as ‘qualifying assets’.

Further, CA has certified that over 50% of Chanura’s loans were for income generating

purposes. As per September 2015 data Chanura had 81.1% of its portfolio in income

generating activities. This is in compliance with the RBI directions given for MFIs.

M2i during its assessment has also verified the conditions for qualifying assets, the

observations are presented below:

• Loan size verification

Chanura has not been offering any loan beyond Rs15,000. Thus, it is in compliance with the

RBI directions on maximum loan in first cycle of Rs60,000 as well as maximum loan in any

subsequent cycle of Rs100,000. Physical verification of over 124 loan documents as well as

visits to 124 clients across all branches of Chanura corroborated this.

• Collateral verification

M2i has verified that Chanura does not take any collateral on its loan, thus complying with

RBI directions.

• Loan duration verification

All of Chanura’s loans are up to Rs15,000 and the loan term is 50 weeks. Thus there is no

violation of RBI directions on loan tenure.

• Household income

Chanura, as a policy, has adopted its target clients as those having annual household income

of not more than Rs100,000 in rural areas and Rs160,000 in urban areas. Thus Chanura

3 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=9688&Mode=0


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complies with the RBI directions on target clients. Chanura takes client profile at the

beginning of every loan cycle in which it collects data of household cash flow, thus capturing

the household income. It also takes declaration from the clients on their income status. In a

check of over 124 loan documents across all 5 branches of Chanura it was observed that all

members had their income within the RBI stipulated annual household income limit for rural

and urban areas.

Multiple lending and indebtedness As per the existing policy of Chanura, it does not lend to any member who is member of any

other SHG or JLG. Chanura itself does not give loan beyond Rs15,000. Chanura has also

obtained CA’s certification in this regard. Thus, it complies with the RBI direction regarding

client indebtedness. M2i did not find any of these directions breached in any of the 124 loan

documents checked and 124 clients visited.

Interest margin Chanura is in compliance with the interest rate margin of 12% for MFIs having loan portfolio

less than Rs100 crores. Chanura has obtained certificate from CA showing its interest rate

margin between lending and borrowing rate as 11.91% for the period 01 April 2015 to 30

September 2015. Chanura’s interest rate margin for FY 2014-15 was 11.75% as per its

audited financial statement.

Capital adequacy

Although no directions have been issued by RBI regarding the capital adequacy for Societies,

but as on 30th

September 2015, Chanura had CRAR of 14.0%. It had risk weighted assets of

Rs52.0 million against the total capital of Rs7.3 million.

Customer Protection Initiatives Chanura has formally resolved to abide by the RBI Fair Practice Code, which has been

approved by its Board. Chanura has also formed its own Fair Practice Code which has also

been approved by its Board. Chanura has displayed its Fair Practice Code in all its branches

and staffs have been trained on it.

Membership with SRO and credit bureau Chanura is a member of Sa-Dhan and is also a member of Northeast Microfinance

Association (NEMFA). Chanura’s CEO, Mr Khuman is the Vice-Chairman of the Northeast

Forum and he is the Chairman of Microfinance Institution’s Association of Manipur

(MiFAM). Chanura is a member of High Mark Credit Information Services Limited and uses

the credit bureau data to take cognizance of the credit history and indebtedness level of

members before lending to them in areas where it has overlapping operations with other MFIs

and where other MFIs are also reporting to the credit bureau.


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Section 3: Observations

2: Observations

3.1 Client Origination and Targeting (COT)

Chanura’s score on client origination and targeting is ‘very good’. Chanura has clearly

defined and documented its target clients, client origination policies and staffs are well

aware of them. Chanura has high focus on clients which are completely financially excluded

and are below RBI defined income levels.

Approval (A) Documentation (D)

� Chanura has a board approved policy

of targeting low income clients as per

RBI directed income criteria.

� The board has approved of policies

regarding proper authentication of

client identity and avoiding overlap

of clients with other institutions.

� Chanura has Board approved policy

on inducting only those clients which

are members of no other MFI.

� The organization has documented policy

on target clients.

� Clear policies have been framed regarding

member eligibility criteria, member

identification, group formation, group

training and final induction of member.

� Chanura has a policy to use PPI data and

cash flow data to identify low income

clients.

� Fair practice code clearly directs staff on

avoiding any agents for originating clients.

Dissemination (D) Observance (O)

� Staff members have been provided

trainings on client origination

process.

� All policies related to client

origination are documented in

manual which is available in each

branch.

� Member eligibility criteria and

associated fair practices are

prominently displayed in each

branch.

� No evidence of use of any external agent

or payment of unfair money for client

origination was observed.

� Chanura does not provide any incentives to

its staffs for acquiring new clients or

servicing existing clients.

� Chanura focuses on areas with no or

minimum MFI presence for expanding

operations. It also does not select clients

who are members of any other MFI.

Chanura carries out survey of an area before starting operation in it. One of the key criteria

for area selection is the low or no presence of other MFIs in the area. Based on survey the

senior management takes the decision for opening a new branch. However, in last few years

Chanura has not been able to open any new branch due to paucity of funds.

Chanura has clearly defined its target clientele and the criteria are prominently displayed at

each branch office. Ethically originating clients and targeting low income clients is part of

93%


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Chanura’s Fair Practice Code. Some of key policies on client origination that are well-

documented, disseminated and also observed in the field are:

• Members who are clients of any other MFI are not eligible to become members of

Chanura.

• Clients must fall within the income criteria as stipulated by RBI directions for rural

and urban areas. This is checked through household cash flow analysis in each loan

cycle. A self-declaration in this regard is also obtained from the client.

• Client must have a PPI score of 70 or less; this is also checked in each loan cycle.

• There should be no use of agents in client origination.

• The clients must be trained through three-day Compulsory Group Training (CGT)

followed by Group Recognition Test (GRT) by Branch Manager.

• Chanura does not provide any incentive to its staff for client origination. This controls

the staff related risk of originating high number of clients using unfair means.

Clients visited by M2i across all 5 branches belonged to low income category and matched

the income profile as stated in the policy. No evidence of involvement of agents was found in

the field.


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3.2 Loan Pricing (LP)

Chanura’s pricing is very transparently displayed at all branches and well communicated to

the clients. The loan cards given to the clients mention the interest rate on declining basis

and the processing fee. The loan cards also clearly mention the principal and interest break-

up for each installment and receipts are issued for each installment payment to the centre.


� Chanura’s board is involved in setting

the interest rate and actively discusses it.

� Board has approved policies for

transparent pricing and its clear

communication to the clients.

� Board has approved to follow RBI

guidelines on margin cap and to adjust

pricing accordingly.

� Chanura has clearly documented its

pricing for all its loan products in

operation manual.


� Staffs are trained on pricing during

induction and regular refresher trainings.

� Pricing is prominently displayed in

branches and documented in operational

manual.

� The loan interest rate and processing

fees is mentioned in the loan card,

sanction letter and also communicated

to clients during CGT.

� Loan card presents the break-up of

principal and interest for each

installment.

� Chanura does not charge any penalty or

interest for unexpired period of loan in

case of pre-closure of loan.

� Awareness regarding pricing and

installment details was found to be

high among clients.

� Chanura fulfills the RBI’s direction on

margin cap.

� Receipts are not issued to clients in

case of pre-closure of loan.

Chanura’s income generation loan carries interest rate of 26% on diminishing balance basis

and other loans products have either same or lower interest rates. In none of the products

processing fee greater than 1% is charged. Currently, Chanura does not have any insurance

product for clients, this has been communicated to clients. Chanura is in the process of

collaborating with an insurance company to offer the service.

90%


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Chanura communicates the pricing to its clients through CGT and through printed means.

The interest rate and processing fee is mentioned on the sanction letter and the loan card

provided to client. However, Chanura does not provide sanction letter for non-income

generating loan, which it should do.

Chanura does not collect any security or collateral. Also no penalty is charged for overdue,

pre-closure of loan or for any other omission by client. While Chanura issues receipts for all

transactions, it was found that in case of pre-closure of a loan by client, no receipt was being

issued. Pre-closure of loans were however, very rare and the organization does not encourage

it unless it is a genuine necessity.

No mismatch in stated policy on pricing and actual practice on field was found during the

assessment. Chanura also complies with the RBI’s direction on interest rate margin and has

obtained CA’s certificate to that effect.


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3.3 Loan Appraisal (LA)

Chanura carries out appraisal of loans before sanction. All loans are sanctioned by Area

Manager after discussion in the credit committee. Cash flows of clients are also checked

before sanction. However, client cash flows and surplus calculated had some inconsistencies.

Further there is no formal criterion for deciding loan amount or loan tenure based on

client’s income surplus.


� Chanura has approved policies for

avoiding over indebtedness of clients

and to lend as per the repayment

capacity of the members.

� Chanura’s operations manual provides

guidelines on measuring indebtedness of

its potential clients and to not lend to

clients who are members of other MFIs.

� Chanura collects client profile in each loan

cycle in which data on client’s household

cash flows and surplus is gathered.

� Parameters for deciding loan amount or

tenure based on clients’ income surplus are

not documented.


� Chanura’s field staffs have been

trained on collecting information

related to indebtedness of their

potential borrowers as well as on

collecting information on their

income levels.

� Staffs need more advanced trainings

on carrying out cash flow analysis or

on taking decision based on client

data gathered. This will be of

particular importance in the future

when Chanura decides to increase its

loan size.

� Chanura makes an effort to assess

repayment capacity of clients.

� The maximum loan size is not very high

and hence is less likely to create over

indebtedness.

� There were inconsistencies in cash flow

recording and also the appraisal criteria do

not clearly link loan amount or loan tenure

with client’s surplus.

� Chanura is a member of credit bureau. But

as some of the other financial institutions

in its operational area are not sharing data

with credit bureau, Chanura is currently

not able to get credit details of clients for

other MFIs. It has to rely on client’s self-

revealed information about their

indebtedness.

The loans at Chanura are appraised by considering client’s attendance in previous cycle,

repayment performance in previous cycle, nature of business and household income surplus.

The loans are sanctioned by Area Manager.

68%


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As part of its Fair Practice Code, Chanura has a documented policy to avoid over-

indebtedness of its clients. Chanura’s own loan size on Income Generation Loan (IGL) is

restricted to Rs15,000 and maximum loan size on Energy loan is Rs12,500. Thus, maximum

outstanding that a client may have with Chanura cannot not exceed Rs27,500. Further,

Chanura at its end tries to select clients who are not members of any other MFI which also

limits the possibility of over-indebtedness. However, as some other MFIs in Chanura’s

operational area are not members of credit bureau, hence Chanura is not able to utilize credit

bureau reports to get client’s overall credit history or level of indebtedness.

For assessment of repayment capacity of a client, Chanura collects household income and

expense data and calculates the surplus. While data on household cash flow is collected in all

loan cycles, some inconsistencies were observed in surplus calculation. Further, Chanura

does not have objective criteria to decide loan amount or loan tenure based on client’s income

surplus. It was also observed that for income-generating loans, Chanura was not providing

clients with acknowledgement for loan application submitted by them.


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3.4 Client Data Security (CDS)

Chanura has a documented and approved policy for keeping the client’s physical data

secured. Policy restricts any unauthorized access or sharing of client data. The policy is also

clearly displayed across all its branches. However, currently all client loan documents are

stored at branch level which does limit the security of client data. Further, Chanura currently

does not have any IT policy and thus there is no documented policy for digital data security.


� Chanura has a board approved

policy regarding client data

security.

� No policy has been approved or

recommended by Board

regarding digital data security.

� Chanura has documented its policy for client

data security and has made it part of its Fair

Practice Code.

� Chanura does not have an IT policy.


� Chanura’s policy on client data

security has been communicated

to its staffs through meetings,

through manuals and it is also

displayed in all its branches.

� Interaction with branch staff

showed that the staffs were

sensitized to keeping the client

data safe.

� The rights regarding accessing and modifying

MIS data are restricted to IT team at Central

Office.

� Chanura does not have computers at its

branches currently and hence branches have no

access to digital data.

� Although no IT policy has been framed, access

to digital data is restricted only to IT Manager.

Daily back-ups of client loan data are also

taken.

� Physical documents are stored at branches

limiting the security of client data and KYC

documents.

Chanura has formulated policies for protection of client data and preventing unauthorized

access of client records. The policy is documented in manual and is also displayed in

branches. The policy clearly debars staff from taking office document outside office premise

or to share the client data with anyone.

But as all client documents are stored at branch level and not at any central warehousing

facility, it does expose the physical documents to risk of mis-utilization, manipulation or loss.

As far as digital data is concerned, the MIS (software) is currently available only at Head

Office. All data entry and data analysis is done at Head Office. None of Chanura’s branch has

computers thus branches have no access whatsoever to digital data.

75%


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But Chanura does not have any IT policy to formally define the processes for digital data

security or access rights on digital data. Despite lack of a formal IT policy, the organization

does take multiple back-up of client loan data on daily basis. At least one back-up is stored at

an external location which is carried by the CEO.


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3.5 Staff Conduct (SC)

Chanura’s score on staff conduct is ‘Excellent’. Chanura has well documented policies

around acceptable staff behavior and on client interaction. The staffs are regularly trained

on these policies through systematic trainings. The staff behavior in the field was observed to

be good and clients did not report of any incidence of any misconduct by any staff in the past.


� Chanura has framed its own Fair Practice

Code and has also adopted the RBI fair

practices code, which include policies

regarding expected staff conduct with

clients.

� Chanura has documented policies around

acceptable staff behavior with clients. Its

Fair Practice Code calls for honest,

cordial and straightforward relation with

clients.


� Fair Practice Code is displayed across all

branches very prominently.

� Employees are trained on such aspects

during regular weekly all-staff meetings.

� Each branch has been given a handbook

which contains the fair practice code and

policy on appropriate client interaction.

� Staffs were found to be aware of

behavioral issues with clients.

� Chanura does not incentivize its staff for

collections, on-time repayments or for

overdue recoveries.

� Visited clients did not report any

incidence of staff misconduct or coercion.

Chanura has adopted policies which require its staff to be honest, cordial and straightforward

with clients. The policies are well documented and disseminated through staff handbook,

prominent displays at branches and also through periodic refresher trainings. It was found

that staffs had good understanding on behavioral aspects with clients.

Chanura’s policy on appropriate interaction with clients states the following:

• Use courteous language, maintain decorum, and be respectful to cultural sensitivities

during all interaction with clients and their family members.

• Not indulge in any behaviour that in any manner would suggest any kind of threat or

violence.

• Not visit clients at odd hours to collect dues.

• Not enter forcibly into dwelling and forced seizure of property without the legal

orders.

Chanura has an approved policy of recovery of overdue loans which calls for application of

joint liability and gradually involving senior staffs if Field Officers and Branch Managers are

not able to resolve the case. As a last resort, Chanura black lists the client, which means that

client will not be inducted in Chanura in future. Policy does not allow any use of force or

coercion for recovery. None of the clients interviewed during this assessment made any

adverse observation regarding the conduct of Chanura’s staffs at any level.

91%


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3.6 Client Relationship and Feedback (CRF)

Clients of Chanura can provide their feedback or lodge complaints through complaint box at

the branches or through helpline number of Head Office. There is also a grievance redressal

committee to take cognizance of grievance cases. However, currently there is no mechanism

to capture client feedback reported to the branch staff. Also there is no analysis of cases of

grievances.


� The Board has approved the policy on

providing a platform to clients for

lodging any grievances.

� Chanura has included addressing

grievances of clients as part of its Fair

Practice Code.

� Currently, Board is not updated on

status of grievances in the

organization.

� The policy regarding grievance redressal

is mentioned in the operation manual and

staffs are expected to address client issues

within 3 days.


� Staffs are aware of the grievance

redressal forum i.e. the complaint box

at branches and the helpline number.

� Members are sensitized on

maintaining good relations with

clients.

� A high proportion of clients interviewed

were aware of compliant box and the

helpline number.

� Helpline number is printed on clients’

loan cards. The helpline calls are received

by the SPM Manager at Head Office.

� There is a grievance redressal committee

of senior managers which meets and

discusses cases monthly.

� There is no process to capture grievances

or feedback provided to branch staff.

Chanura has documented grievance redressal policy. The grievance redressal platform

include complaint box at the branch and a helpline number, which is of Head Office. The

number is printed on loan card. The policy stipulates resolution of client complain within 3

days. Subsequently, branch has to provide an assurance report mentioning that the client

grievance has been resolved.

Clients were observed to have high awareness of the fact that they could lodge a complaint on

the number printed on the loan card. It was observed that the volume of calls on helpline or

letters in complaint box was very low. Instead most clients preferred to discuss any issue

directly with the concerned Field Officer or with the Branch Manager. But currently, there is

75%


19

no mechanism to capture the grievances or feedback that clients provided to these branch

staff.

Chanura maintains records of complaints lodged through Helpline number or through

complaint boxes. These records are maintained manually in different registers which makes

analysis of grievance related data difficult. Thus, there is scope of improving record-keeping

process by not only maintain a single digital database of client feedback but also capturing

the feedbacks provided to branch staff. Having grievance data in computers will make its

analysis easier.

Chanura has three-member Grievance Redressal Committee with SPM Manager, Area

Manager and HR Manager being part of it. The committee meets on monthly basis to take

cognizance of the grievance cases reported during the period. However, currently there is no

representation of this committee on the Board and the Board is not updated on grievances.


20

3.7 Integrating Social Values into Operations (ISV)

Chanura has ‘good’ performance on ISV. This is on account of its non-income generating

loan products which have addressed critical life-cycle needs of its clients and its other

interventions to support its members and society at large.


� Chanura’s board has adequate

representation of independent members.

� The organization’s mission is to

empower poor women and low income

households by providing financial

services in a sustainable manner.

� Chanura’s Board has been proactive in

encouraging the organization to carry out

other interventions beyond financial

services that may bring positive changes

in lives of clients and society.

� Chanura has developed a Social

Performance Management policy.

� Its vision, mission and values reflect

the organization’s social commitment.

� It has documented policy related to

assessing impact of its services on its

clients.


� Chanura’s staffs are aware of the target

clients who are mainly from low income

category.

� The target clientele of Chanura and its

social vision and mission are displayed

in all its branches.

� Staffs are well-aware of non-income

generating products and pro-actively

promote these products.

� Chanura has a social performance

management department with a full-

time Manager.

� Chanura offers emergency loans and

loans for lighting solutions. Almost all

of Chanura’s clients have taken

repeated loans for solar lamps.

� Chanura regularly carries out financial

literacy programmes for its clients.

� Chanura carries out annual impact

assessment of its services.

Chanura has eight-member board, of these five members are independent. The board actively

discusses financial as well as other non-financial interventions of Chanura.

Chanura is also keen on understanding the impact of its services on its clients and hence

regularly collects client case studies and carries out impact assessment annually. It also

collects PPI data of its client in every loan cycle. However, it was found that the level of

analysis on impact assessment data was not rigorous and also no analysis was done on PPI

data.

75%


21

One of the highlights of Chanura’s operations is its financial product for lighting solutions. It

has been carrying out its “From Darkness to Light” program since 2009. Under which it has

disbursed around Rs53 million so far. According to Chanura’s Annual Report 2015, this

product has helped clients save at least Rs450 per month on energy charges and has

benefitted 20,000 families. It has helped children able to study and has also helped people

work until late in the evening impacting their incomes.

During the assessment it was found that energy loan product was very popular among clients

and they reported it to be very useful. The quality of solar lights and other home lighting

solutions was also reported to be good by people.

Chanura also actively promotes saving culture among its members. It does not collect saving

itself but much like SHG model, encourages its centres to carry out internal saving and credit

activities. It even provides members with saving passbooks and helps centres open bank

accounts.

Chanura also runs financial literacy programs for its members and carries out other social

interventions like health camps and relief and rehabilitation work in case of any disaster.

Chanura celebrates its founder’s day by carrying out activities of social relevance.


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Annexure 1: Matrix of Score Obtained4

Indicators

A Do Ds O Total

Max Obt Max Obt Max Obt Max Obt Max Obt

Client origination

and targeting 5 4.0 5 5.0 5 5.0 9 8.3 24 22.3

Loan Pricing 3 3.0 1 1.0 2 2.0 9 7.6 15 13.6

Loan Appraisal 4 2.0 4 3.0 3 2.0 5 3.9 16 10.9

Client Data

Security 1 1.0 3 1.0 2 2.0 2 2.0 8 6.0

Staff Conduct 7 6.0 7 7.0 10 9.0 11 9.8 35 31.8

Client

Relationship and

Feedback

2 1.0 8 7.0 6 4.0 10 7.4 26 19.4

Integrating Social

Values into

Operations

3 3.0 3 2.0 3 2.0 5 3.5 14 10.5

Total* 25 20.0 31 26.0 31 26.0 51 42.5 138 114.5

A= Approval, Do=Documentation, Ds=Dissemination, O=Observance, Max = Maximum,

Obt = Obtained score

4 ADDO © Prime M2i Consulting Private Limited


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Annexure 2: Tool Development, Methodology and List of Branches Visited

The code of conduct compliance assessment tool was developed as a response to the need

expressed in a meeting of stakeholders in Indian microfinance by the Small Industries

Development Bank of India (SIDBI) and the World Bank in December 2009. The code of

conduct dimensions were identified by reviewing the various norms for ethical finance. These

included RBI’s fair practices guidelines for Non Banking Financial Companies, industry code

of conduct (Sadhan-MFIN) and CGAP’s client protection principles. The most important

challenge for M2i was to create objective indicators which could comprehensively measure

the seven dimensions. A total of 138 indicators5 were developed across these dimensions, so

that subjectivity in measurement could be minimized. The numbers of indicators for each

dimension are presented below.

Dimension Nos. of Indicators

Client origination and targeting 24

Loan Pricing 15

Loan Appraisal 16

Client Data Security 8

Staff Conduct 35

Client Relationship and Feedback 26

Integrating Social Values into Operations 14

Total 138

In order to make the measurement comprehensive and objective, a method of scoring was

developed so that:

1. Measurements on the indicators are taken on the dimensions across the four

parameters within an MFI – Approval, Documentation, Dissemination and

Observance

2. Indicators are mapped to underlying characteristics which can be objectively

measured. This is illustrated in the box below.

Illustration

One of the indicators developed to measure the dissemination of guidelines related to staff

conduct is:

Has the MFI provided training to its operational staff on their conduct with clients,

particularly relating to:

A. Conducting client meetings

B. Collecting repayments

C. Recovering overdue loans

The basis of scoring this indicator is the proportion of operational staff interviewed who

have received training on these specific aspects. In case all the staff members have received

trainings on each of these aspects then the score is 1 on each of these indicators, totaling to

3. If only 50% of the operational staff members interviewed have received training on these

specific aspects then the score totals to 1.5 (0.5+0.5+0.5).

5 Integrating Social Values into Operations with 14 indicators was added to tool in September 2012.


24

The Code of conduct assessment tool was tested on four MFIs during its portfolio audit and

best practices validation engagements. M2i formally presented the code of conduct

assessment tool at a microfinance lender's forum meeting held in Mumbai at SIDBI's office in

June 2010.

RBI’s Directions and Guidelines With RBI issuing various specific guidelines for MFIs, M2i started scoring MFI’s

compliance to regulatory guidelines from 2012 onwards. The scores obtained by MFI on

various COCA dimensions are scaled down in proportion to the score obtained in regulatory

compliance.

Methodology

The code of conduct exercise is spread over four to eight days. The first day is spent at the

head office. The assessment team visits the branches over the next three to eight days.

Depending upon the size and the operational area of the MFI, three to fifteen branches and

between 120 and 200 clients are sampled for primary survey.

Key Aspects � Duration of the exercise: Four to eight days

� Nos. of branches to be visited: Eight to Fifteen

� Nos. of MFI clients to be interviewed: 120-200

This exercise requires:

1. Discussions with key staff members and the senior management at the head office,

particularly the senior operational management team as well as the human resources

team. These discussions focus on key issues of the code of conduct identified above.

2. Review of policy documents and manuals at the head office. These are reviewed in

order to assess the policy as well as documentation regarding important aspects of the

code of conduct. The last audited financial statements will also be required.

3. Sampling of branches at the head office. The assessment team samples branches for

review. The branches are chosen in across different states in case the MFI operates in

more than one state. Care is exercised to include older branches as well as branches

that are distant from the head office or the regional office. The sampling of the

branches is performed at the head office of the MFI.

4. Discussions with the branch staff at the branch office. Discussions with branch

managers and the field staff is carried out to assess their understanding of the key

code of conduct principles.

5. Sampling of respondents in the selected branches. A judgmental sampling is

performed on the MFI’s clients by the assessment team to draw respondents from the

interest group, in order to maximize the likelihood that instances of non-adherence

can be detected.

6. Interview with the clients. Information from the clients is collected ideally during the

group meetings. If this is not possible, visits are made to the clients’ locations for

collecting information.

7. Review of loan files at the branch office. This review focuses on loan appraisal

performed before disbursing loans as well as the documents collected from the clients.

As part of this assessment, we visited. The details of the project offices (branch) visited are

provided below.


25

Sr No Branch* State No of clients interviewed

1 Sega Road Manipur 32

2 Singjamei Manipur 20

3 Wangkhei Manipur 27

4 Sagolband Manipur 25

5 Kwakeithel Manipur 20

Total 124

*Chanura has only five branches and M2i visited all its branches.


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Annexure 3: Code of Conduct Assessment – Framework

Code of conduct dimensions

• Client origination and targeting: Client origination is central to ethical microfinance

operations. The code of conduct requires MFIs to practice ethical client origination

which results in greater access to financial services. Also, an MFI’s commitment to

target the low income clients demonstrates its social mission. The way an MFI

identifies its clientele and goes about growing a clientele must be approved by the

board, which should also see to it that there is adequate attempt by the MFI to ensure

that its product and services reach the appropriate clientele.

• Loan pricing: The scientific determination of loan price (interest rates) reflects well

on the MFI’s management and it also shows how effective the MFI is in providing

loans to the clients at the least possible cost. The way its loan products are priced

should be approved by the board. Ideally the board members should be aware of the

cost of the loan products to the clients.

• Loan appraisal: The lending to a client should be in accordance to her repayment

capacity or else she may get over-indebted and her economic situation may

deteriorate. The loan appraisal should take into account the repayment capacity of the

clients given the loan sizes and the duration of the loan. These are important client

protection principles.

• Client data security: The privacy of sensitive data of individual clients regarding their

demographic details should be adequately secured so that it is not used by

unauthorized parties to cause stress to the clients. For this purpose, MFIs need to

define explicitly access rights to all the demographic data pertaining to clients

sex, race, age, income, disabilities, mobility (in terms of travel time to work or

number of vehicles available), educational attainment, home ownership, employment

status, and location.

• Staff conduct: All the staff members of an MFI should treat its clients with respect

and dignity. The two important aspects of staff behavior are:

1. Communication with clients – There should be guidelines for staff to deal with

specific situations involving their interface with the clients such as group

meetings, loan disbursements and collections. These should ensure that customers

with low levels of financial literacy understand the product, the terms of the

contract, and their rights and responsibilities. Clients should also be aware of the

debt recovery practices of the MFI. They should be aware of what to expect in

case there is a delayed payment or a default. Clients should be encouraged to ask

questions regarding the product and policies. Also, the staff should ensure that

arrive for meeting in time.

2. Loan collection and recovery process - MFIs should evolve collection practices

that require all clients to be treated with dignity and respect, even when they fail

to meet their contractual commitments. The following should be strictly avoided:

• Abusive language or threats

• Harassing borrowers at odd hours

• Forcible entry into dwelling and forced seizure of property without the legal

orders

• Relationship management and feedback mechanism: It is important for MFIs to build

sustainable and long term relationship with clients. Sound relationship management

enhances the quality of the clients’ experience with the MFI. It also allows the MFI to


27

better understand clients’ needs and grievances. MFIs need to have formal

mechanisms to get feedback and complaints from the clients. Customer complaints

need to be taken seriously, investigated and resolved in a timely manner. The

responsibilities relating to receiving client grievance and feedback and acting upon

them need to be clearly identified and allocated.

• Integrating Social Values into Operations: It is necessary to have high standards of

governance and to have client focused social mission. It is also necessary to measure

the socio-economic changes that MFIs’ efforts are bringing in the lives of its clients

and to compare it against the mission.

Compliance

In order to fully integrate operations with the principles presented above, MFIs need to adopt

a comprehensive approach involving the board, the management as well as other staff

members and clients. This tool measures the adherence to these principles on four parameters

– Approval, Documentation, Dissemination, Observance (ADDO). This ADDO framework

has been developed by M2i and is summarized below:

1. Approval at the policy level from the board

2. Documentation of the guidelines and procedures that emerge from the policy

3. Dissemination of the guidelines and procedures across the organization

4. Observance in practice of these guidelines and procedures.

Weights The following matrix presents the weights given to the various dimensions and parameters in

the tool.

Weight Matrix Approval Documentation Dissemination Observance Totals

Client Origination 4% 4% 4% 7% 19%

Loan Pricing 2% 1% 1% 7% 11%

Loan Appraisal 3% 3% 2% 4% 12%

Client Data Security 1% 2% 1% 1% 5%

Staff Conduct 5% 5% 7% 8% 25%

Client Relationship and Feedback 1% 6% 4% 7% 18%

Integrating Social Values into

Operations 2% 2% 2% 4% 10%

Totals 18% 23% 21% 38% 100%

Regulatory compliance (ReC)

Since it is mandatory for MFIs to comply with the guidelines given by the regulator, the

MFIs are assessed for their compliance with these regulations. The level of compliance of an

MFI to regulations is scored and this is factored-in in COCA by scaling down the scores on

various COCA dimensions in proportion to the score obtained on ReC. In total there 12

indicators have been used to measure ReC.

Documents

Microfinance Code of Conduct Compliance Assessmentchanura.com/.../chanura_coca-report-chanura-2015.pdf · Microfinance Code of Conduct Compliance Assessment Assessment done by: Rahul