RBI accord industry associations as Self Regulatory Organization (SRO) for NBFC-MFI

On recommendation of sub-committee, appointed to study the issues and concerns in the microfinance sector in so far, on formation of industry associations, the Reserve Bank has decided to accord recognition to industry associations as Self Regulatory Organization (SRO) of Non-Banking Financial Companies that are engaged in microfinance (NBFC-MFIs). This is to ensure effective monitoring of the functioning of NBFC-MFIs, their compliance with the regulations and code of conduct and in the best interest of the customers of the NBFC-MFIs.

The membership of NBFC-MFIs in the industry association/SRO will be seen by the trade, borrowers and lenders as a mark of confidence and removal from membership will be seen as having an adverse impact on the reputation of such removed NBFC-MFIs. While membership to the SRO is not mandatory, NBFC-MFIs are encouraged to voluntarily become members of at least one SRO.

The SRO holding recognition from the Reserve Bank will have to adhere to a set of functions and responsibilities, such as formulating and administering a Code of Conduct recognized by the Bank, having a grievance and dispute redressal mechanism for the clients of NBFC-MFIs, responsibility of ensuring borrower protection and education, monitoring compliance by NBFC-MFIs with the regulatory framework put in place by the Reserve Bank, surveillance of the microfinance sector, training and awareness programmes for the members, Self Help Groups, etc and submission of its financials, including Annual Report, to the Reserve Bank.

SRO Criteria for Recognition:

i. The SRO should have at least 1/3rd of the NBFC-MFIs registered as its members, at the time of recognition.

ii. It should have adequate capital to be able to discharge its functions without being overly dependent on subscription from members.

iii. The memorandum / bye laws of the Self-Regulatory Organization (SRO) should specify criteria for admission of members and the functions it will discharge, as one of its main objects;

iv. The Memorandum / bye laws of an SRO should provide for the manner in which the Governing Body / Board of Directors of the SRO would function.

v. The Board should have adequate representation from both large and small NBFC-MFIs.

vi. 1/3rd of the Board of Directors should be independent and not associated with member institutions.

vii. The Board of Directors and individuals comprising the management should be considered fit and proper, by the Reserve Bank.

viii. It should have adequate internal controls in place.

ix. The SRO should function in the interest of all the stake holders and not seen to be only an industry body.

x. The SRO should frame a Code of Conduct to be followed by its members.

xi. It should have a Grievance Redressal Mechanism and a Dispute Resolution Mechanism in place, including a specially appointed Grievance Redressal Nodal Officer.

xii. It should be in a position to exercise surveillance over its members to ensure compliance with the Code of Conduct and regulatory prescriptions of the Bank through an Enforcement Committee.

xiii. It should also have a developmental function of training and awareness programmes for its members, for the Self Help Groups and conduct research and development for the growth of the MFI sector.

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