microfinance code of conduct compliance...
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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.
2
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.
Code of Conduct Compliance Assessment – Chanura
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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%
Code of Conduct Compliance Assessment – Chanura
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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
Code of Conduct Compliance Assessment – 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.
Code of Conduct Compliance Assessment – 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
Code of Conduct Compliance Assessment – Chanura
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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.
Code of Conduct Compliance Assessment – Chanura
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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%
Code of Conduct Compliance Assessment – Chanura
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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.
Code of Conduct Compliance Assessment – Chanura
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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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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.
Code of Conduct Compliance Assessment – Chanura
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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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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.
Code of Conduct Compliance Assessment – Chanura
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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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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%
Code of Conduct Compliance Assessment – Chanura
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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.
Code of Conduct Compliance Assessment – Chanura
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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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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%
Code of Conduct Compliance Assessment – Chanura
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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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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%
Code of Conduct Compliance Assessment – Chanura
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.
Code of Conduct Compliance Assessment – Chanura
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.
Approval (A) Documentation (D)
� 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.
Dissemination (D) Observance (O)
� 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%
Code of Conduct Compliance Assessment – Chanura
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.
Code of Conduct Compliance Assessment – Chanura
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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
Code of Conduct Compliance Assessment – Chanura
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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.
Code of Conduct Compliance Assessment – Chanura
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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.
Code of Conduct Compliance Assessment – Chanura
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.
Code of Conduct Compliance Assessment – Chanura
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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
Code of Conduct Compliance Assessment – Chanura
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.