Microfinance market to adopt overdue debt recovery standard
The Bank of Russia supported the initiative to adopt the overdue debt recovery standard developed by Self-regulatory Organisation Microfinance and Development (SRO MiR) and presented at the meeting of the Expert Council on Microfinance and Credit Cooperation held at the Bank of Russia on 20 June 2019.
It is the first time that such a document has been prepared. It establishes the procedure for the recovery of overdue debt by microfinance organisations and will be used as an internal standard by SRO MiR mandatory for compliance by all its members.
Over 50% of all inquiries of MFO services consumers to SROs and the regulator are complaints about overdue debt recovery procedures. A part of them is related to the activity of recovery professionals (collector agencies) and a significant share comprises violations of consumer rights by illegal creditors and collectors. However, recovery procedures conducted by MFOs themselves also generate a large number of complaints. The standard takes into account the most pressing issues that occur during debt recovery process and are reflected in the inquiries.
The standard completes and extends the requirements and restrictions set forth by Federal Law No. 230-FZ, and tightens the norms established by law. In particular, it allows interacting only with such third persons that the borrower has indicated as potential recovery process participants. That said, such interaction must immediately stop if that third person expresses his or her objection in any form. Moreover, MFO employees are prohibited to present themselves as state or municipal authorities; they must promptly identify themselves as employees of a certain microfinance organisation.
The document also requires that an MFO should include in the agreement a clause on mandatory compliance with this standard by the agent when transferring a portfolio of overdue debt for recovery by a third party, and provides for penalties for violation of this requirement. In turn, MFO employees who have violated the standard requirements will be obliged to compensate for the damages.
The document developers believe that the standard, being a more flexible instrument than a law, will strictly regulate all activities related to recovery, and its implementation will help promptly earn experience that may provide a basis for further proposals to improve the relevant existing regulation. The standard is expected to be operational in July 2019.
‘We welcome such an initiative of professional creditors as using a standard to tackle the existing issues. We also urge other self-regulatory organisations in the microfinance market to pay attention to this document, – noted Deputy Governor of the Bank of Russia Vladimir Chistyukhin. – We believe that the introduction of a unified standard for debt recovery procedures will not only protect the rights of borrowers of certain financial institutions but also boost consumers’ trust in the financial market in general.’