Ensuring Implementation of Client Protection in Microfinance:A Study of Select Microfinance Institutions in West Bengal

The over-indebtedness of microfinance borrowers, high interest rate and coercive method of collection by some mFIs are the vital problems in the microfinance sector of India. The situation became more critical as there is no such regulation and single regulatory body for the sector. So, there is a dire necessity of proper regulation for ensuring the clients protection and responsible financing. Sa-Dhan has developed few client protection principles for its members in India. Internationally, CGAP and Smart Campaign also came out with six client protection principles. There are some provisions also included in the Andhra Pradesh Ordinance 2010, Malegam Committee Report to RBI and Microfinance Institutions (Development and Regulation) Bill 2011 for ensuring client protection.

The primary objective of the study is to examine the present scenario of the client protection mechanism in Indian mFIs. The study tries to show the role of regulation for ensuring the client protection of the MFIs members. We have selected eight parameters of client protection and have matched it with the performance of two selected mFIs in West Bengal named Arohan and Bandhan for evaluating their client protection mechanism.

The current focus of microfinance is also the excluded sections from mainstream financial services. This would mean that the literacy levels of microfinance consumers are generally very low and therefore the topic of financial literacy and financial capabilities of the clients has an added significance. Financial literacy is therefore an integral component of client protection. GIZ through its initiatives supports client protection by building knowledge databases of client advisors in safeguarding the the rights of clients and redressing and filing of complaints.