Fair Practice Code

Microfinance loans are defined as collateral-free loans given to households with an annual income of up to Rs. 3 lakh.

• The lender must have a board-approved policy for assessing household income and submitting information to credit information companies.

• The lender must have a board-approved policy on the limit of loan repayment obligations of a household, which should not exceed 50% of the monthly household income.

• The lender must have a board-approved policy on pricing of microfinance loans, which should include a well-documented interest rate model, delineation of the components of the interest rate, and a ceiling on the interest rate.

• The lender must disclose pricing information to borrowers in a standardized simplified factsheet.

• The borrower should not be charged any amount that is not explicitly mentioned in the factsheet.

The Fair Practice Code is designed to protect borrowers from unfair and deceptive lending practices. It ensures that borrowers are given accurate information about the terms of the loan, including the interest rate, fees, and repayment schedule. The code also limits the amount of debt that a borrower can take on, which helps to protect them from over-indebtedness.

If you are considering taking out a microfinance loan, it is important to read the Fair Practice Code carefully and ask the lender any questions that you have. You should also make sure that you understand the terms of the loan before you sign any paperwork.

Using respectful language and avoiding threatening or abusive language.

• Not using coercion to recover loans.

• Not intimidating or humiliating borrowers.

• Not calling borrowers before 9:00 a.m. or after 6:00 p.m.

• Not harassing the borrower's relatives, friends, or co-workers.

• Not publishing the borrower's name.

• Not threatening or using violence against the borrower or their family.

• Not misleading the borrower about the extent of their debt or the consequences of non-repayment.

In addition to these principles, digital lending platforms should also:

• Have a board-approved policy for loan applications and processing.

• Have a board-approved loan appraisal policy that complies with RBI guidelines.

• Provide a minimum period of moratorium for loan repayment.

• Share changes in terms and conditions with borrowers well in advance of the changes taking effect.

• Make clear disclosures in the loan agreement or loan card about the terms and conditions of the loan, including the interest rate, fees, and repayment schedule.

By following these principles, digital lending platforms can help to protect borrowers from unfair and unethical practices.

Here are some additional tips for digital lending platforms to protect their customers:

• Conduct thorough due diligence on borrowers before approving loans.

• Use clear and concise language in loan agreements and other documentation.

• Offer flexible repayment options to borrowers who are struggling to make payments.

• Provide borrowers with access to financial education resources.

• Have a robust complaint handling process in place.

By following these tips, digital lending platforms can help to ensure that their customers have a positive experience.