If complaints of low-income MFI clients are resolved at the earliest, it would help avoid another crisis, as was seen in 2010

During the peak of the crisis, I remember Suresh Gurumani, the then CEO of SKS Micro-Finance, responded to my post in the micro-finance practice a Yahoo discussion group by saying that one of the most important tasks that he had accomplished at SKS (when has was there), was the establishment of toll-free number where low-income consumers could file their complaints. While I am not sure how the initiative has worked on the ground, it is imperative to follow-up on the idea for several reasons given below and it would be great if the proposed micro-finance bill explicitly brings in the following aspects—concerning complaints and consumer protection mechanisms—as part of the overall regulatory and operational architecture for micro-finance in India.

Let us first set the record straight. Customer complaints are not only a very valuable source of feedback but they also provide very useful information for the MFI. Complaints from micro-finance clients reveal what information they receive about their financial services and how and to what extent they understand the disclosure that is provided. This information is valuable to all stakeholders, including MFI (micro-finance institution) managers, supervisors, regulators and other stakeholders.

Therefore, at a minimum, all MFIs should be obliged to have a designated department (or at least few officers) responsible for handling complaints and redressing the same. There is a need for MFIs to set up specialised complaint departments to receive complaints from clients and investigate if indeed an error had been made by the institution. All MFIs —large and small—should have at least few officers designated to receive such complaints. When taking a new loan and/or opening a new account (where MFIs are permitted to access savings) and buying any new service (such as insurance or pensions), the client should be advised in person and also in writing as to where complaints, inquiries and disputes should be submitted.

Further, for each district, there should be one/few, clearly identified, locations where low-income clients of micro-finance services can go to discuss their financial problems. These offices should have a toll-free telephone line so that anyone from anywhere in the country can obtain information about the micro-finance services and their rights as consumers in case of a dispute. Clients should also be encouraged to file their complaints by visiting the complaints offices or by sending them through postal mail (e-filing of complaints is an option, as well). Thus, irrespective of the exact nature of the organisation of the complaint mechanism, MFI clients should have at least few identifiable locations where they can make inquiries, obtain reliable information and be directed as to how to request resolution of a dispute. Apart from English and/or Hindi, all of this must be available in local languages, as well. Disputes over specific cases will have to be handled by a separate redressal mechanism given above (special department), failing which the clients would have the right to approach concerned departments of the regulator/state governments and/or designated ombudsman.

And regulators/supervisors, as part of the supervision process, should regularly review the complaint files of the MFIs that they oversee. Regulators/supervisors, while conducting on-site supervision visits at MFIs concerned, should review each MFI’s complaint files. They should also review the ways in which MFIs treat their clients —and wherever necessary, they should enforce the basic tenants of any consumer protection aspects. This would imply that their on-site supervision would include random visits to MFI branches and the associated field areas. Once this starts happening, regulators/supervisors must review complaint files (from the available database) to identify which MFIs receive a high number of complaints from low-income clients and why—and what remedial actions are taken. One interesting approach could be for the regulators to publish an annual report on the number of client complaints by MFIs and the common sources of the complaints. Without doubt, that could become the best deterrent for any deviant and abusive behaviour that became the talk of the town during the 2010 Indian micro-finance crisis. And there is a great opportunity to further develop these ideas and institutionalise all of them in Indian micro-finance through the proposed micro-finance bill that is to be introduced, debated and hopefully passed in the forthcoming winter session of Parliament.