Irda slaps Rs 50-lakh penalty on SKS Microfinance

Microfinance institution levied a charge on members, that exceeds the premium and violates regulations

Insurance Regulatory and Development Authority (Irda) has slapped a penalty of Rs 50 lakh on SKS Microfinance for violating insurance norms. Irda said the microfinance institution (MFI) levied a charge on its members, which was more than the premium amount, in violation of insurance regulations.

Irda has asked SKS to remit the penalty within 15 days from the date of receipt of the order.

According to the group insurance guidelines, an MFI cannot collect from its members amounts that are higher than the policy premium charged by the insurance company. MFI has not collected any ‘premium’ amount from its members but it collected one per cent of the loan amount as DRF fee.

According to the Irda order, the MFI was acting as a group policyholder and administrator for group life insurance policies, taken to cover the loan amount granted to its members.

Irda noticed that the group policy holder was recovering one per cent of the loan amount towards DRF (death relief fund) fee.

A portion (around 55 per cent) of the DRF fee is utilised to fund the group term insurance premium for the members. In case a member opts to insure her spouse/child, an extra one per cent is charged for each additional member.

Irda said the group policy holder does not insure all its members in a single policy, but obtains a different policy for each month. As the group policy holder pays only a part of the DRF fee as insurance premium, the remaining amount is booked as revenue income. This, according to Irda, is in violation of the group insurance guidelines

“The documents establish that the premium is only about 0.55 per cent of the loan amount and not 1 per cent as charged for the death protection fee,” the Irda order said. Thus, the MFI has levied a charge more than the premium in violation of guidelines, Irda noted.