HR Policy

Introduction

Human resources are the most asset for any organization. It is the human resources that make other resources like money, material, and machine productive. Therefore, it is critical to invest in the development and welfare of human resources in order to maximize the institutional performance.

Sudhanshu Micro Service is one of the fastest growing micro finance companies in India, currently working in Main Office in Uttar Pradesh and Corporate in Banswara, Rajasthan.

Sudhanshu Micro Service has achieved a remarkable position in the market in a very short span of time. It is very important to have committed, talented, and loyal employees to achieve the vision and mission. The management at Sudhanshu Micro Service understands and appreciates the fact that an employee can contribute his/her best only when she/he is The general be associated with the organization.

Human Resource Management (HRM) provides an institution with an effective workforce in order to achieve its mission. Effective HRM uses systems and tools to bring together:

• The right number of people,
• With the right attitude and skills,
• In the right place,
• At the right time.

Sudhanshu Micro Service Company has 4 Types of recruitments As per requirement

• Incentive Basis Agents And Etc.
• Honorarium Basis (As per Empty Post Branch/Franchise/etc.)
• Permanent /Probation /Guest Faculty(This Policy Applicable)
• Agency higher employee.

Specific objectives of this police are:

.To lay down a system of proper Human Resource Planning and get right person in right place and in tat right time so as to have non-disrupted operations.
.To build employee enthusiasm, loyalty towards the organization, through a system of rewards and incentives
.To facilitate the implementation of HR policies and practices in a sensitive and crystal clear manner to the employees.
.To elaborate the system of staff development through trainings To facilitate coordinated team effort in the organization.

Code of Conduct

The code of conduct is applicable to all employees of Sudhanshu Micro Service. The Company is committed to conducting its business in accordance with the applicable laws, rules and regulations, and with highest standards of business practices and ethics. The issues covered in this code are of utmost importance to the company, its employee, and members.

All the staff of Sudhanshu Micro Service must remember that they are representatives of an institution and that it will be judged by the way they look, act and talk. They are bound to work under code of conduct of the company. The code of conduct aims at encouraging all the members of Sudhanshu Micro Service to achieve and maintain the highest standards of conduct and performance.

Purpose of the code of conduct:

• ✔ Encourage high standards of honesty, integrity and ethics among the employees of the company.
• ✔ Encourage observance of standards to protect the interest of employees, and members.
• ✔ Provide guidance to all Sudhanshu Micro Service staff on the standards of the conduct required by the company.
• ✔ Provide guidance to all Sudhanshu Micro Service staff on the standards of the conduct required by the company.
• ✔ Achieve responsible use of and control over all the assets and resources employed and entrusted.
• ✔ Indicate what actions would constitute as "Breaches of conduct".
• ✔ Describe the action that the company would take as a consequence of breaches of the conduct, and the relative seriousness of those actions.
• ✔Explain the rights of staff.

The following are some obvious but important obligations that should be followed by every staff of Sudhanshu Micro Service:

• ✔Clients and potential clients, and indeed everyone you meet i n the course of your work are to be treated with respect, politeness, and honesty.
• ✔ Staff will behave in a disciplined manner, with mutual respect, trust and spread fraternity through their interactions with colleagues/clients and outsiders.
• ✔ Staff will not use any abusive language either among colleagues, clients or subordinates/supervisors.
• ✔ Staff will show respect to the dignity of all colleagues. No usage of authority to undermine a colleague's sense of pride or dignity.
• ✔Staff are not permitted to accept anything personally from clients and potential clients, not even a drink of water. Violation of this rule may attract disciplinary action.
• ✔Staff are not permitted to enter into any personal, social or business relations with clients or potential clients, without getting prior written permission from the CEO.
• ✔Staff will not have any commercial dealings with parties in whom friends or colleagues have a direct financial interest or connection, or indulge in any unethical practices with the funds and work.
• ✔Staff will not engage in outside employment or reveal any confidential information relating to the organization to any outsider, not defame Sudhanshu Micro Service or a colleague.
• ✔Staff will not consume alcohol, smoke, or take drugs in the work place in the interest of maintaining organizational culture, the good health and working comfort of all colleagues and visitors.
• ✔ Staff will not discriminate based upon caste, creed, religion or gender.

Policies and Procedures

Human Resource policies and procedures are documented guidelines that provide a structure to the work environment. These guidelines define the roles and responsibilities of both Sudhanshu Micro Service and its employees, where topics such as work conditions, legal requirements (in accordance with local and national labour laws), compensation, and many other issues are generally included.

Importance of Policies and Procedures

Human resource policies and procedures provide consistency, fairness, and efficiency in dealing with staff members. Having a written policy document also provides the ability to establish and clearly communicate the rights and responsibilities of Sudhanshu Micro Service and its staff members. Human resources policies can also be a valuable tool to ensure that all employees are treated equally and to save on the time required to research past precedent and make a decision on individual cases. Stated policies can simplify the communication with the staff members on what is expected of them, what services or compensation Sudhanshu Micro Service provides, and what procedures will be followed. Lastly, human resource policies are important in handling legal issues with employees and in reinforcing the institutional culture by treating employees equally.

Disciplinary Procedure

The staff of Sudhanshu Micro Service are bound to act under the rules and regulations of the company. They are liable to work under discipline and maintain sophisticated culture. Non-compliance of these code of conducts/staff and official rules will result in suitable disciplinary action against the staff member by the appropriate officer(s) of the company. All cases of alleged misconduct by staff will be considered by a Disciplinary Panel which will consist of at least two officers of the company from senior in positions, but not the immediate supervisor of the staff member concerned. The names of the members of the Disciplinary Panel shall be posted on the notice board of the place of work of the accused member.

Acts and Omissions constituting as misconduct

• Misconduct Guidelines
• Categories of Misconduct
1. Wilful Disobedience: Disobeying lawful orders from superiors, either individually or in combination with others.
2. Striking Work: Participating in strikes or go-slow actions without giving the required legal notice.
3. Incitement: Encouraging colleagues to strike while in the office.
4. Theft and Fraud: Committing theft, fraud, or dishonesty related to the employer’s business or other employees' property.
5. Bribery: Accepting or giving bribes or illegal gratifications from any subordinates, guests, clients, or customers.
6. Habitual Absenteeism: Frequent absence from work without leave.
7. Disorderly Conduct: Engaging in drunkenness, fighting, or any behavior that could endanger others or disrupt workplace discipline.
8. Negligence: Regularly neglecting job responsibilities.
9. Threatening Behavior: Intimidating any employees or clients within the establishment.
10. Confidentiality Breach: Sharing unauthorized information about company processes.
11. Gambling: Participating in gambling activities on company premises.
12. Sleeping on Duty: Failing to remain alert while on the job.
13. Insubordination: Deliberately delaying or refusing to follow orders.
14. Unauthorized Fundraising: Collecting or canvassing for money without management approval.
15. Private Business Activities: Conducting personal business, such as money lending, on company premises.
16. Acts Against Discipline: Committing any act that undermines discipline or the reputation of the company.
17. Unapproved Absence: Leaving work or office without permission from a superior.
18. Unauthorized Distribution: Distributing newspapers, pamphlets, or posters within company boundaries without prior management approval.
19. Unauthorized Meetings: Organizing or attending meetings on company premises without management permission.
20. Unauthorized Use of Property: Using company property or land without approval.
21. Spreading False Rumors: Disseminating false information that disrupts the workplace atmosphere.
22. Speculation: Engaging in speculation involving investments or commodities on company premises.
23. Anonymous Criticism: Writing anonymous letters that criticize the company or its management.
24. Criminal Conviction: Being convicted of a criminal offense or imprisoned by a magistrate or police officer.
25. Political Involvement: Actively participating in local politics that could affect company business.
26. Providing False Information: Furnishing incorrect details about personal information or previous employment.
27. Breach of Standing Orders: Violating any provisions of misconduct as defined by the Standing Orders.
28. Record Interference: Tampering with attendance registers or other official records.
29. Possession of Weapons: Having any lethal or other weapons on premises without management approval.
30. Notice Board Tampering: Altering or damaging materials posted on the notice board.
31. Falsifying Records: Engaging in record falsification or defalcation of company funds.
32. Intimidating Inquiry Officers: Threatening or misbehaving towards inquiry officers during investigations.
33. Verbal Abuse: Abusing any employees, clients, or outsiders within the establishment.
34. Inducements: Offering material inducements to clients for participation in company programs.
35. Disreputable Activities: Involvement in actions that bring disrepute to the company.
36. Lack of Cooperation: Failing to cooperate during surprise audits or not providing requested documents in a timely manner.
37. Financial Accountability: The officer in charge must reconcile any money transactions by the end of the day.
• Punishments for Misconduct
1. Minor Punishments:
   • Warning or written notice
   • Fines in accordance with the Payment of Wages Act
   • Withholding of increments for a specified period
   • Suspension without pay for up to 4 days
   • Demotion to a lower position or pay scale
2. Major Punishments:
   • Permanent termination of service
   • Temporary discharge from service until the issue is resolved

Note: A disciplinary action is taken on the staff if/when they fail to comply with the aforesaid rules and policies. However, the decision of the CEO/Board of Director will be final in case of taking any disciplinary action.

Public relations

Although all employees are representatives of Sudhanshu Micro Service, unless authorized by the CEO, employees are strictly forbidden to make available publications or declarations to outside sources including donors, media, other NGOs and/or MFIs and government officials about Sudhanshu Micro Service, its performance, role, or work. All inquiries from outside the organisation should be referred to the HR Manager ongoing basis, the HR policies and procedures may need to be modified to accommodate a changing environment. Any changes to the policies and procedures will be discussed at senior management meetings. The outcome of these discussions will then be communicated at the field level meetings. Changes to the policies and procedures will be approved by the CEO after taking into consideration the employee feedback.

Circulars signed by the CEO will be issued to the field offices and the Head Office employees communicating the changes. All such circulars will also mention the time period after which the changes will be implemented.

A copy of the circular should be displayed on the notice board and another copy filed till such time the changes are reflected in a newer version of the HR manual.

A master copy of HR the annual should be kept in the custody of HR Head who will be responsible to ensure that each circular is filed at the appropriate place and is inserted in the manual. HR Head should also ensure that the HR manual is reviewed and updated every year, based on the changes/updates in HR related policies.

Recruitment and Selection:

Recruitment is the search for qualified candidates to fill an open job position, followed by the evaluation and decision on which candidate is the best match. The entire process starts by identifying Sudhanshu Micro Service's requirements, and ends with negotiating the final offer with the candidate and making the hire. Institutions are successful because of their people-both past and present.

Critical to our future success is the quality of the people our organisation can attract, recruit and retain. Recruiting the right person has tremendous benefits. The right person is someone who is well matched to the job tasks and our institution's values and goals. If a person is a "good fit", they will demonstrate high levels of initiative and creativity; they will be productive and likely stay longer with our organisation.

1. Advertisements

For positions Sudhanshu Micro Service prefers recruiting from the communities in its operational areas.

To attract talented people for recruitment after receiving the notification from CEO/Manager HR including the following:

Local contacts are informed regarding the vacancies and information is passed onto local media to make the masses aware of it.

For mass recruitments, Sudhanshu Micro Service advertises the vacancy notification in local newspapers in which qualified candidates, especially women, are encouraged to apply. As per Board of Director Guidelines.

The budget for this process will be defined and advised by Head Office.

2. Assessment and Selection

The Head of Human Resource Department shall ensure that selection criteria for all posts to be filled are properly defined and adhered to, during the selection process.

3. Age Criteria

The range of minimum age 18 year. As per Government Rules.

4. Tests

After resumes have been received, short-listed candidates are called to come to the branch office for a written test. The written test includes questions that test the mental agility and awareness of the candidate, as well as basic arithmetic. The level of difficulty varies by position. Candidates must attain at least 50% marks in their written test in order to qualify for the interview round. The panel members must consider these marks while taking their decision.

5. Group Discussion (during mass recruitment and when possible)-

The recruitment Officer makes the group of 8-10 candidates and executes the GD.

6. Interviews

Those candidates who have passed the written tests are invited for an interview,

7. Panel Formation for Selection of Staff

Panel Structure consists of minimum 3 members.

8. Documents required at the time of Recruitment

• Prospective candidates must bring a copy of their CV, one passport-sized photograph, and original as well as a copy of academic certificates, experience certificates, and address proof/ID proof (Aadhar is mandatory).
• Candidates must qualify in their respective written test, group discussion, and personal interview held with the panel members.
• Credit certificate.
• Police verification character certificate.
• Local authority character certificate.

9. Besides, the additional features to be considered at the time of selection are:

• Personality Attributes
• Physically fit to sustain the pressure in fieldwork.
• Good communication skills with an emphasis on Hindi to convince clients.
• Maturity and self-confidence to deal with different situations in the operational area.
• Honesty and integrity.

10.Verification of Original Documents:

It is the responsibility of panel members to verify the original documents before taking their final decision so that defaulters may be short-listed beforehand.

11. Referral Check:

Online Verification Of Aadhar & Pan and Police Verfication.

Restriction on Dual Employment

As an essential condition, the successful candidates are not allowed to carry on anywhere else employment simultaneously. Non-compliance with this condition may lead to cancellation of selection so made.

12. Sending Documents to Corporate Office to Generate the Appointment Letter

They should send the documents used at the time of selection (i.e. interview assessment sheet, answer sheet, copy of CV, academic certificates) of the successful candidates to HO on the basis of which their appointment letter will be drafted.

Joining Formalities;

After selection, the successful candidates are called at Head office for the induction training. This includes some basic knowledge about the company's Mission & Vision, its products, operational processes etc. HRD needs to coordinate with the training in charge to ensure that all new recruits are being trained before they start their work. The appointment letter with initials by HRD and signed by managing director's is issued on the same date

taking into consideration that no local posting is allowed for male candidates. Field-based candidates would be posted at least at a distance of 60 km. (40 km. in case of BEs) from their current place of residence. Company has a right to transfer any branches of india.

Checklist for Personal File-

HR shall create and maintain a separate personal folder on the appointment of a new employee. HR manager (at HO) will be responsible to manage and make sure all the personal folders are up to date.

The content of this personnel file shall include the following:

• ★ Two passport-sized photographs
• ★ KYC documents
• ★ Application letter
• ★ Curriculum Vitae (Resume)
• ★ Copies of academic transcripts
• ★ Job offer letter
• ★ Referee letters (if available)
• ★ Appointment letter and contract
• ★ Code of Conduct and Employee Declaration
• ★ Personal Information Form, including:
  • ★ Account number
  • ★ Blood group
  • ★ Next of kin
• ★ Home contact details and dependents
• ★ Appraisal reports and summaries
• ★ Details of any disciplinary actions
• ★ Letters of recommendation, promotion, and recognition
• ★ Salary information
• ★ Letter of resignation or termination
• ★ Letter accepting resignation
• ★ Letter of relieving

Training and Probationary Period

The staff shall initially be placed on training period of 2 year during which the Recruitment Committee will assess the suitability for the position and the employee will move to a probation (of 2 year) if found suitable.

In some cases, the candidates who have sufficient experience in a relevant field can also be selected and placed directly on probation. The period of training/ probation starts with induction.

ID Cards: All employees are issued an identification card and must wear it at all times while on duty. All ID cards must be returned to the HR Department upon an employee's departure. In case of loss of ID card, the loss is to be immediately reported to the concerned Supervisor and HR Manager, initially over phone, email or any other faster communication, and subsequently in writing.

Training and Development

Training Programmes at Sudhanshu Micro Service are designed to:

• ✓ Improve the effectiveness of staff members in current roles.
• ✓ Increase adaptability of staff members; ease the introduction of new technologies or methodologies.
• ✓ Standardise work processes to increase overall efficiency.
• ✓ Reduce costs by decreasing employee turnover.
• ✓ Help retain employees who understand Sudhanshu Micro Service's mission and culture, thereby building loyalty; helps in decentralising decision-making authority as staff capabilities increase.
• ✓ Training benefits individual staff members by allowing them to improve their professional skill sets and overall productivity.
• ✓ Increase job satisfaction through a more thorough understanding of the tasks to be performed.
• ✓ Improve self-confidence.
• ✓ Enjoy increased morale, which contributes to a desirable work environment.

Training Programmes at Sudhanshu Micro Service:

Sudhanshu Micro Service has a separate training department which takes care of different training needs of the staff. A separate Training Manual is being developed to take care of training requirements of the organisation. Sudhanshu Micro Service will offer following trainings for its staff:

• ★ Orientation Training
• ★ On-the-job Training
• ★ Refresher Training
• ★ Exposure Visits
• ★ Trainings Outside Sudhanshu Micro Service

Orientation Training

All new recruits at Sudhanshu Micro Service receive an orientation to Sudhanshu Micro Service's Vision, Mission and core Values. They learn what they can expect from Sudhanshu Micro Service as well as what is expected of them. This training includes an introduction to Sudhanshu Micro Service's policies and procedures, with specific focus on the Operations Manual and the HR Manual. Such an orientation program serves to build an internal culture of cohesion, clarity and focus.

On-the-Job Training

During this training Employee work, closely with more experienced Employee in the field to learn the intricacies of group management and Sudhanshu Micro Service's loan processes, and with Employee at the branch office to develop the proper administrative skills. This will build confidence and enhance learning. The CEO/HR will take regular feedback from the new recruits and monitor their performance on regular basis.

Refresher Training

Training should be a continuous process to ensure that learning is retained and that new practices are communicated in a timely fashion. Other training needs are assessed at the beginning of the year as part of the annual performance appraisal meetings.

External experts may be invited for any specific topic which the CEO or Manager-HR may feel like and depending on the budget allocation. During all trainings, organisational values will be reinforced and employees will be updated with any changes in policies and procedures.

Exposure Visits

Exposure visits may be requested for employees from different departments of the organisation to gain an appreciation of best practices in the industry. Operations staff such as Branch Managers, who have a track record of good performance, can also be taken on exposure visits to other MFIs in order to improve their understanding of the sector and also to prepare them for greater responsibilities in the future.

Trainings Outside Sudhanshu Micro Service Sudhanshu Micro Service

staff may attend any specialised training conducted by external technical service providers. The MFI shall select the appropriated candidates for attending such trainings.

MFI provides training approval letter to the participants which includes a clause that the participants will have to subsequently give/deliver the same training within their team (or to those for whom the topic is relevant within Sudhanshu Micro Service). It will be held as an internal training and has to be delivered within one month of date the external training.

Training planning:

Sudhanshu Micro Service integrates its assessment of training needs with the performance appraisal process. A report mentioning both the training requirements and budget is sent to the CEO. Once it is approved, a training calendar is prepared. Depending on the budget and the expertise available, the HR department will schedule trainings in house or outside the organisation.

Training evaluation:

Training feedback is critical to assess and evaluate whether the objectives of the training session were met and whether the instructional methodology was effective and well received by participants. Feedback is also solicited to evaluate the instructor, the venue and the hand out materials. Employees who attend trainings/exposure visits outside Sudhanshu Micro Service should also submit a training report in which they can provide comments on the quality of the training attended and whether they would recommend a similar training for other employees of Sudhanshu Micro Service in the future.

Separately, management should assess the impact of the training on building employee skill sets. By observing and monitoring the performance of the employees who have undergone training, management can independently determine whether desired results were obtained with regard to building human capital, whether the investment was justified, and what might be done to make the training more effective in the future.

Monitoring Emplovee Exits:

An approach to terminations, particularly those related to performance will affect the morale and the general work environment. The overall morale may actually improve if the employee's lack of performance was a frustration for the more productive employees. By carefully planning the termination the following can be assured:

• ● The overall shock or distress will be reduced significantly for the terminated individual.
• ● Sudhanshu Micro Service will potentially face fewer difficulties with the former employee afterward.
• ● Office morale can be maintained.
• ● The dignity of the individual can be maintained.
• ● We can proceed with the exit of the employee and service termination after one month of salary.

Leave Policy

Leave Rules:

1. General Rules: Leave though it is a privilege, cannot be claimed as a matter of right. It involves application, consideration and sanction by competent authority. An employee before proceeding on leave shall furnish his/her address during the period of his leave and any change in the address is to be informed to the competent Authority.

2. Authorities empowered: The Managing Director or the Officer authorized by him can grant all types of leave to the employees. Application for leave shall be addressed to the Managing Director.

3. Power to refuse or recall when an employee on leave: Depending on the exigency of services so required, discretion to refuse or revoke leave of any type or to recall an employee from leave is reserved with the competent authority except in the case of leave on medical grounds.

4. Extention of leave: If an employee on leave desires an extention thereof, he has to make an application in writing so as to reach Stree Nidhi at least 7 days before the expiry of the leave. Written reply communicating the sanction or rejection of leave shall be sent to the employee to the address given by employee.

5. Absence or overstay: Absence without leave for more than seven days whether in continuation of sanctioned leave or otherwise entails disciplinary action and the period of absence will be treated as loss of pay at the discretion of competent authority.

6. Commencement and termination of leave:The first day of an employee's leave is the working day succeeding to the day on which employee is relieved. The last day of an employee's leave is the working day preceding the day on which employee returned to duty.

7. Types of leave: Subject to the provisions of the HR Policy, the following kinds of leave may be granted to an employee as decided by the Managing Committee.

Casual leave

Annual/Sick leave

Special Casual leave

Maternity and Paternity leave.

Extraordinary leave

Casual Leave:

i. Casual leave may be granted for 12 days for full calendar year and on pro rata basis one day leave for every month of service which are lapsable at the end of each completed year of service.Casual leave will be counted for calendar year and for part of the year, will be calculated on pro rata basis.

ii. The days of casual leave and public Holidays combined in all shall not exceed ten days at a time.

iii. It shall not be affixed or prefixed to any other kind of leave.

iv. Prior sanction is necessary to avail of casual leave except in unforeseen circumstances which will have to be specified in writing in the application.

Annual Leave:

In addition to the casual leave, the employees can avail 18 days of annual leave in a calendar year, which are lapsable at the end of each calendar year. In case of part of the year, it will be on prorata basis.

Special Casual Leave:

Special casual leave, not counting against ordinary casual leave, may be granted in the following circumstances. Any employee who undergoes operation under family planning scheme is eligible for special casual leave on production of medical certificate from Assistant Civil Surgeon. Female employees who undergo Tubectomy are eligible for special casual leave for a period not exceeding 20 days and male employees who undergo Vasectomy are eligible for six days of special casual leave.

Maternity and Paternity leave:

i. Maternity leave on full pay shall be granted to a married woman employee for a period not exceeding 3 months per delivery, up to 2 living children, with a mandatory rest period of 12 months or as per policy changes over time. An additional 3 months of leave may be sanctioned without salary.

ii. Maternity leave may be combined with other types of leave; however, any leave requested following maternity leave must be supported by a medical certificate.

iii. Maternity leave should be taken in one continuous period and not in installments.

iv. Maternity leave may be granted on two occasions during the entire period of a female employee's service.

v. Paternity leave on full pay shall be granted to a married male employee for a period not exceeding 6 days for each of two children.

Extraordinary leave:

i. Extraordinary leave may be granted depending on track record of employee and only in case of serious sickness or any other reason at the discretion of Managing Director only if the other leaves are exhausted.

ii. In such case increment will be postponed and no salary will be paid for the leave period

THIS POLCY WILL ONLY BE IMPLIMENTED AFTER ACTIVE 20 EMPLOYEE EXIST IN COMPANY

Microfinance Industry Code of Conduct

Preface

Sudhanshu Microfinance Institutions (SMFs) seek to promote financial inclusion through holistic services provided to the economically unserved and underserved households for personal and social upliftment, irrespective of the funding structure of legal institutions. Over time the microfinance sector has become an integral part of the financial infrastructure for the weaker sections of the society in India.

It is important to define core values and appropriate behavior for the microfinance sector to ensure that microfinance services provided by SMFs are ethical and fair, as well as profitable for clients.

Message from the President of Sudhanshu Micro Service Foundation, Sudhanshu Micro Finance and Financial Services (SMF)

Good wishes

I am glad that under the Companies Act 2013, Sudhanshu Microfinance and Financial Services (SMF) is issuing a code of conduct for the microfinance industry.

The Code of Conduct has gone a long way to ensuring that, with the consent of all shareholders, we create the principles on which we conduct business with a sensitive observer group, while firmly establishing best practices as a reference benchmark. are being used as. It is also heartening that compliance with the code of conduct is being assessed across the sector and these reports are being given importance by potential investors in assessing various institutions. Everyone's support for the progress of the sector and Micro Finance Company is one of the licensed institutions under the Indian Company Act 2013.

The code of conduct will motivate the directors and management to follow a uniform, latest and highest standard. Implementation of the code of conduct will prove to be effective in the development and achievement of the company's objectives.

I would like to thank the CEO and Managing Director and shareholders of Sudhanshu Micro Finance for their support and contribution in making this a reality.

Mrs. Mamta w/oRajesh Kumar Soni

Chairman
Sudhanshu Micro Service Foundation Private Limited (SMF)

Message from Managing Director of Sudhanshu Micro Service Foundation

Good wishes

The Code of Conduct for the Micro Finance Sector is essentially a code made with the consent and discretion of the Board of Directors. A code of conduct is a code that sets specific standards for how an industry interacts with its directors and management, as well as its customers. The benefits of this code include improved industry transparency, improved investor confidence in the sector and increased compliance with laws to reduce evasion. A CSIC code of conduct is more flexible than legislation and can be addressed more efficiently to keep up with changes in the needs of the sector and, in addition, industry participants have a better sense of code ownership with a stronger commitment to adherence. The code serves as a quality rule within the industry.

The first thoughtful and mutually beneficial code of conduct for micro finance has been propounded, which has helped in bringing consumers and management together. Codes of conduct assessments have evolved into essential tools for evaluating an MFI for a variety of purposes. In view of the recent developments in the field, it was felt that there was a need to formulate a code of conduct. The process included discussions from across the micro finance world with contributions from individuals and management. SMF took forward the final discussions for drafting the Code. While technically the code is for NBFC-MFIs, the instrument is supporting this code as a framework that other MFIs should wish to follow.

We are confident that this Code of Conduct will ensure harmonious progress in this sector and enable all industry participants to reach the fundamental goal of providing financial services to the unserved and underserved populations and all areas of this country.

Mr. Kuldeep Lodawat

Management Structure
Sudhanshu Micro Service Foundation Private Limited (SMF)

Message from CEO of Sudhanshu Micro Service Foundation (SMF)

Good wishes

The development of microfinance in India has seen many trends and has had a long and complex journey. Today we have many units in microfinance around us that deal with low-income families and provide them access to unsecured funds. The average microfinance client is usually a family from a weaker section or middle or upper class with entrepreneurial aspirations. The risk to such customers stems from the fact that there is a lack of access to basic services and a lack of awareness that they can be used. Therefore it is necessary to ensure that the interests of these customers are protected. Where there is a spirit of customer protection and responsible transactions are taking place and to ensure this, there is a code of conduct for the microfinance industry. It is a document that is voluntarily signed by a board of directors operating in the industry and that clarifies the manner and means of transactions with an emphasis on compliance and ethical business practices.

The code of conduct has been prepared with hard work of about three months. The microfinance industry has changed a lot since then. Reserve Bank of India introduced new micro rules. The Board of Directors is striving to make SMF a bank. All policies of the Code of Conduct incorporate changes relevant to the microfinance ecosystem. A multi-stakeholder working group of representatives has been drawn up. The Working Group has contributed a significant amount of time and effort to the development of this version of the Code of Conduct.

I would like to express my personal gratitude to the members of the Working Group. I would like to express my special gratitude to the industry expert, Mr. Rajesh Kumar Soni, who gave his valuable time and facilitated various aspects of the discussion in the spirit of public interest.

Mr. Pratik Joshi
CEO, Sudhanshu Micro Service Foundation

FAIR PRACTISE CODE

Bank Account Operation Policy

As per Board Resolution Date: 11/06/2024
Account Opening Date: 29/06/2024

The software is integrated with Bank API.

Operational System

Fair Practices Code (RBI Guidelines) - Sudhanshu Micro Service Foundation Company

Fair Practice Code (RBI guidelines)-Sudhanshu Micro Service Foundation

Company. Sudhanshu Micro Service Foundation. Company falls under the category of a Private It is classified as Non-govt company -MFI {company act 2013 section 8 } as per RBI directives and commits itself to implement and adopt fair practices in all its activities and transactions with stakeholders. A code of conduct has been adopted to establish minimum standards and promote good and fair behavior in order to better understand the services provided by the company to its customers and enhance transparency and engagement with them. The Company is committed to implementing and adopting fairness in all its activities and transactions with its members while functioning as an -MFI.

Method of providing micro finance loan to Joint Liability Group

In the projection meetings held in the villages, women are told about the functioning of loan distribution and its processes. Women are then asked to form groups of five members of their choice and 3 to 6 such groups will have a JLG centre. The Company does not select the group members nor influence their decisions regarding income generating activity nor the loan amount. After the formation of the group, the concerned Relationship Officer will collect the customer's details (ID, residence) proof for processing (checking the credit bureau), after getting the result from the credit bureau, CGT (Continuous Group Training) procedures. Will be conducted for 4 days, covering methodology, loan products, insurance, financial literacy etc., Group Recognition Test (GAT) is conducted by the Branch Manager. The customer takes the responsibility of repaying the loans of other members. After successful GRT, the loan documents are sent to the head office for entering into the MIS and sanctioning the loan. After loan approval, the sanctioned loan amount is transferred to the bank account of the branch. The branch manager informs the center about the date of loan disbursement and the loan disbursement is done at the branch itself. Center meetings are held weekly, fortnightly/monthly in their villages at their convenient place and time. The field staff of the company (Relationship Officers) facilitates loan access, repayment and credit discipline of the groups.

At the field level, Branch Managers, Area Managers and Regional Managers make surprise visits to the centres/villages to verify the operations with the customers. And want feedback on the services provided during the loan origination process from SMF. Telecallers also seek feedback from center members and center leaders during the tenure of the loan to seek feedback on the quality of the center and functioning of the facilities provided by SMF.

A. Code of Fair Practices for all lending activities

Loan Proposals and Their Processing

a) Primary data will be collected from the borrower as per the Know Your Customer (KYC) guidelines of the company, using the prescribed format. Verification will be conducted with credit bureaus before further processing.

b) Authorized staff will verify the loan application form and the surety, ensuring all applicable approvals are obtained according to the company's policies. Staff must ensure that the following information is completely filled out:

✓ Application Date

✓ Borrower Identification Details

✓ Loan Amount and Product Details

✓ Applicable Interest Rate

✓ Loan Period

✓ Repayment Details

✓ Indebtedness Details

✓ Income Statement

✓ Purpose of Loan

c) The company will use the local language of the borrower or a language understood by them during the loan application process.

d) The loan application form provided by the company will include necessary information that impacts the borrower’s interests, enabling meaningful comparisons with the terms and conditions offered by other NBFCs. The borrower must submit the following documents along with the application to avail of a loan from the company:

✓ KYC Documents as prescribed by the Reserve Bank of India (ID and address proof)

✓ Income Ratio

✓ Joint Passport Size Photograph of the Customer and Spouse or Guardian

e) The company will acknowledge receipt of all loan application forms. Loan applications will be disposed of within the specified time limit, and acknowledgment receipts will be issued.

Loan Appraisal and Terms and Conditions

The designated employee of the company for giving loan in the local language shall express or give in writing the following:

✓ Approval of loan amount

✓ Loan terms and conditions

✓ Annual Rate of Interest

✓ Method of application of annual rate of interest

✓ Processing Fee

✓ Insurance charges

Loan Disbursement Process

a) At the time of loan disbursement, the company shall complete the following documents as applicable:

✓ Demand Promissory Note

✓ Joint Liability Acceptance and Loan Agreement

✓ Acceptance by the borrower of the terms and conditions, including the rate of interest, processing fee, payment terms, and any other relevant conditions.

b) The acceptance of these Terms and Conditions by the borrower shall be documented, and all related documents shall be securely maintained by authorized personnel of the company.

c) The company will provide all borrowers with a copy of the loan agreement at the time of loan sanction, which includes all terms and conditions in the local language understood by the borrower, along with any accompanying documents.

d) All loan disbursements shall occur at the branch office, with more than one authorized person present at the time of disbursement.

e) A loan passbook will be issued to each borrower, detailing the loan repayment schedule, effective interest rate, processing fee, and insurance premium claim process.

f) The company may accelerate payment or execution under the loan agreement, as mutually agreed with the borrower, and will provide appropriate notification.

g) There shall be no penalties for delayed loan payments, as specified in the loan agreement in the local language.

h) If the company intends to modify the terms and conditions of the loan, including the disbursement schedule, interest rates, or charges, it will inform all borrowers in the local language.

General

a) The Company shall not interfere in the affairs of the borrower, except as outlined in the terms and conditions of the loan agreement.

b) If a borrower requests a transfer of the loan account, the Company's consent or objection will be communicated within 21 days of receiving the request. Such transfers will comply with transparent contractual terms and applicable laws.

c) The Company will not engage in unlawful harassment or intimidation for loan recovery.

d) The Company shall ensure that its employees are adequately trained to interact with customers respectfully and professionally, avoiding any rude behavior.

Measures Against Charging Excessive Interest

a) The Board of Directors will establish appropriate internal principles and procedures for determining interest rates, processing fees, and other charges.

b) The company will adhere to guidelines ensuring transparency regarding loan terms and conditions as outlined in its fair practices policy.

c) Relevant factors such as interest rate models, cost of funds, expected returns, and risk premiums will be implemented with the Board's approval.

d) Different interest rates for various products will be clearly disclosed in the loan application form and the loan sanction letter provided to the borrower.

Privacy of Customer Information

Customers' personal information will be kept completely confidential.

Information will be disclosed to third parties only under the following circumstances:
- If the customer has provided written consent for the disclosure.
- If legally required to do so.
- In cases involving authorized parties, such as credit bureaus, where information is shared on a mutual basis.

The company adheres to a Fair Practices Code specifically for microfinance activities. Being categorized as an NBFC-MFI, the company follows a specific and fair code of conduct for its lending operations, aligned with the regulatory framework in place.

General studies

a) The Code of Fair Practices will be displayed in the local language at the company’s office and branch premises.

b) The company will showcase its commitment to transparency in loan practices and provide loan card details in the local language.

c) Field staff will be trained to make necessary inquiries regarding the existing loans of borrowers.

d) Free training will be offered to borrowers, with field staff providing comprehensive information about the processes and systems related to loan products.

e) The effective rate of interest and the established problem-solving system will be prominently displayed in all relevant offices and on the company’s website in the local language.

f) The company will declare its stance on the unfair conduct of staff and outline the grievance redressal process. A code of appropriate conduct will be visible in branch offices.

g) The company will ensure compliance with KYC norms and assess the repayment capacity of borrowers, following the guidelines set by the Reserve Bank of India.

h) All loan distributions will take place at the company’s branch offices, supervised by the designated loan distribution officer.

i) The company will not require any security deposits for loans provided under microfinance activities.

Disclosures in loan agreement/loan card

a) The company will ensure that loan agreements are available in a standard local language approved by the Board.

b) The loan agreement shall disclose the following information:

- All terms and conditions of the loan.

- The loan price will comprise only three components: interest charges, processing fees, and insurance premiums.

- No surcharge will be levied for late payments.

- No surcharge will be imposed for prepayment.

- No security deposits of any kind will be collected from borrowers.

- Borrowers may not be members of more than one Self-Help Group (SHG) or Joint Liability Group (JLG).

- Borrowers are assured that their confidentiality will be maintained, with their consent.

c) The loan card provided by the company will include the following details:

- Effective rate of interest.

- All other terms and conditions related to the loan.

- Information that adequately identifies the borrower.

- Sufficient details about borrowers to ensure accurate identification.

- Records of all installments received, along with a final release receipt provided by the company.

- Arrangements for the redressal of complaints, with the contact number prominently displayed on the loan card.

Borrowers will be informed that the fee structure for their loan products, as outlined in the loan card, is subject to their consent. The loan card will be provided in the local language, with the exception of numerical information.

Avoidance of over-indebtedness:

a) Before granting a loan, it is essential to assess the customer's needs and repayment capacity appropriately.

b) Loans will not be provided to members who belong to more than one Self-Help Group (SHG) or Joint Liability Group (JLG).

c) No member shall exceed the aggregate credit limit prescribed by the Reserve Bank of India or the relevant Central/State Governments.

Non-Forceful Methods of Recovery:

a) Installments will be collected in a common area where customers feel comfortable.

b) Staff will adhere to RBI guidelines for loan recovery, ensuring that collections are not made before 6:00 AM or after 7:00 PM.

c) Staff must follow customer protection guidelines established by the company and refrain from coercive collection methods.

d) If a borrower fails to appear at the designated location for two consecutive occasions, staff may proceed with recovery at the borrower's residence or place of work.

e) Staff should not enlist others for the collection of dues from customers.

f) Staff must record details in the passbook after collecting repayments, or the customer should receive a receipt as proof of payment.

g) The company will ensure that recruitment, training, and supervision of field staff align with the Board's policies regarding the code of conduct, including the following provisions:

- Determining the minimum qualifications required for field staff.

- Providing essential training tools to effectively engage with customers.

- Including field staff in training programs focused on appropriate interactions with borrowers, avoiding abusive or aggressive recovery practices.

Borrower satisfaction will be evaluated in terms of service quality, number of loans processed, and recovery rates. There will be an increased emphasis on compensation methods for employees.

Guidelines for All Types of Microfinance Loans:

Internal Control System:

The company will establish organizational arrangements to ensure compliance with responsibilities and implement a robust internal control system. This includes audits and periodic inspections to guarantee adherence to designated processes. Regular internal audits will be conducted across all branches to monitor the implementation of the revised Fair Practices Code. Additionally, the company will appoint a dedicated Compliance Officer to oversee the Fair Conduct Code implementation and report to management on a monthly or quarterly basis.

INTERNAL AUDIT POLICY 

Introduction

The definition of internal auditing is as follows 'Internal auditing is an independent, objective assurance and consultancy activity designed to add value to and improve the operations of Sudhanshu Micro Finance. It helps an organization meet its objectives by bringing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes.

The internal audit function provides important assurance to the SMF's board of directors and senior management about the quality of the SMF's internal control system. In doing so, this function helps reduce the risk of loss and reputational damage to the SMF. Therefore, it is an indispensable and integral function for the safe and sound operation of SMF.

Objectives of RFIA system:-

1. Deregulation of operations and liberalization of policies and procedures have provided greater autonomy to SMFs in their operations. Globalization of financial markets and innovation of new products have posed formidable challenges to banks. As a result, internal audit, which is a part of the internal control process, must take responsibility for assessing systems and processes to identify, measure, monitor, and control risk. Therefore, there is an urgent need to reorient transactional internal audit towards risk-focused internal audit.

2. Under risk-focused internal audit, the focus will shift from the current system of full-scale transaction testing to risk identification, prioritization of audit areas, and allocation of audit resources as per risk assessment. This policy includes a risk assessment methodology to identify risk areas on the basis of which the audit plan will be prepared.

3. This policy relates to internal audit of all branches and SMF's business units. Internal audit of branches is complemented by the concurrent audit policy. The domain of risk-focused internal audit in SMF has been further extended to audit of business activities/functional entities, which is addressed separately in the respective audit policies, such as the IS Audit Policy. Thus, every activity/space of the SMF, including the risk management function, is subject to risk-focused audit.

4. Risk-focused internal audit of branches carries out an independent risk assessment with the aim of formulating a risk-focused audit plan that takes into account the inherent business risks of an activity location and the effectiveness of control systems to monitor the underlying risks of business activity.

5. Risk assessment: Risk assessments of branches should be made based on the underlying business risks and 'control risks', as outlined in Risk Focus. Risk assessment should not only indicate the level of risk as high, medium, low, and very low, but also the trend of the risk in terms of increasing, decreasing, or stable. RBI has advised clarification of risks under various categories and subcategories.

1. Occupational Risk

A. Credit risk
B. Earnings risk
C. Liquidity risk
D. Business strategy risk
E. Operational risk

2. Control risk

A. Internal control risk
B. Compliance risk

We are required to measure the risk level under each of the above categories and for the entire branch, prepare a risk matrix, and conduct trend analysis.

Our approach:

Risk assessment of branches will be based on the underlying business risk and control risk, as outlined in the "Guidance Note on Internal Audit Risk Based."

A. Business Risk Assessment – Business Risk Rating Model

SMF branches are the primary outlet for selling our products. Business risks at the branch level depend primarily on factors such as the volume of business, the complexities of activities, the rate and pattern of growth, the structure and seriousness of business, the quality of assets created, the extent of portfolio/industry activity concentration, and the cost of resources collected. A risk rating model should be established to assess business risk, which includes the following broad parameters:

• A. Business growth rates and patterns
• B. Cost of resources raised
• C. Dependence on wholesale/institutional deposits
• D. Concentration of debt
• E. Credit portfolio quality
• F. Level of advances including NFB
• G. Asset quality
• H. Risk weight exposure
• I. Unsafe advance level (fresh slippery)
• J. Low mortality rate

Rating Scale: The business risk captured through the model will be evaluated on a rating scale as follows:

Score Range	Rating
>= 85% and <= 100%	VERY LOW
>= 70% and < 85%	LOW
>= 60% and < 70%	MEDIUM
>= 0% and <= 60%	HIGH

B. control risk assessment

Control risk assessment is to be done on a scoring basis. The model covers three broad risks namely credit risk, operational risk and external compliance risk. Risk assessment will be carried out on site at the time of audit through a structured format. A structured format has already been prepared for this purpose. The control risk rating done on site at the time of final RFIA for each branch available in the March quarter will be counted for the purpose of preparing the audit plan for the next financial year.

The revised new RFIA format has been adopted by our SMF which is to be updated from time to time as directed by the sponsoring SMF.

Rating Scale: The business risk captured through the model will be evaluated on the rating scale as follows

Score Range	Rating
>= 85% and <= 100%	VERY LOW
>= 70% and < 85%	LOW
>= 60% and < 70%	MEDIUM
>= 0% and <= 60%	HIGH

4. Scope of Audit, Role and Responsibilities of Auditor

RBI guidelines

The annual audit plan approved by the Audit Committee of the Board should include the schedule and justification for the planned audit work. It should also include all the risk areas and their prioritization based on the level and direction of risk. For example, areas or activities identified as having high risk may be audited at shorter intervals than areas with medium or low risk, which may be audited at longer intervals subject to applicable regulatory guidelines.

The primary focus of risk-focused internal audit will be to provide reasonable assurance to the board and top management about the adequacy and effectiveness of the risk management and control framework. When examining the effectiveness of the control framework, the focus is on risk. The audit should report on proper recording and reporting of exceptions and excesses. Transaction testing will continue to be an essential aspect of risk internal audit.

Will have to be determined on the basis of risk assessment.

our guidelines

1. Audit is an important function through which effective control is exercised over the branches by the head office. It involves scrutiny of the functioning of the branches in all aspects, including:

• Verification of cash, stock of all numbered items, securities, and other assets.
• Examination of books of accounts and business profitability.
• Evaluation of the branch’s performance in raising deposits and financing neglected areas.
• Proper utilization of manpower.

It also includes verification of whether the books are properly maintained, regularly settled, and balanced in accordance with the instruction manual of e-bank, policy documents, and instructions issued from time to time by the Head Office. The instructions in circulars must be scrupulously followed, and necessary safeguards against fraud should be in place to avoid unnecessary duplication of work. In short, the main objective of the audit is to ensure that the branch is operating effectively from both financial and organizational perspectives.

2. Generally, the audit should cover the period from the date of the previous audit to the date of the present audit. However, if it is necessary to go beyond the last audit date for important aspects, the auditors should not hesitate to do so in the interest of the Bank.

3. The duties of an auditor are difficult and responsible. The auditor should fully comply with the instructions/guidelines provided in the circulars issued by the SMF office and have complete knowledge of the functioning of various departments/sections of the branch. Auditors should not deviate from their duties due to fear or favor.

4. An audit officer must maintain a high standard of integrity and competence, ensuring a thorough investigation of various matters in the branch.

5. The auditor's function is crucial. Audits must be thorough, complete, and impartial, including:

• Ensuring appropriate security measures for cash, bills, and other assets as per Corporate/Head Office instructions.
• Regularly balancing or properly maintaining books.
• Correctly complying with and submitting prescribed returns to the HO/RM office and statutory returns to RBI and other authorities.
• Conducting thorough investigations of all accounts.
• Verifying the correctness of income/expenditure parameters related to branch operations.
• Reporting compliance with KYC guidelines and risk profiling/classification of clients.

6. While examining inward and outward correspondence, the auditor should pay special attention to the promptness of communications from HO/RM, as well as replies to any complaints against the branch or its employees.

7. All frauds, serious cases of unauthorized trading, and other major irregularities found by the auditor should be reported immediately to the Audit and Inspection Department at HO, without waiting for the audit to be completed. The auditor's approach should be constructive, providing a list of irregularities to the branch manager to facilitate rectification before the audit is completed.

8. The auditor should review previous RFIA reports, inspection reports, concurrent audit reports, and LFAR to ensure that previous irregularities have been rectified. Special attention should be given to comments like "since done," "since rectified," and "noted" from the Branch Manager to the Head Office, ensuring compliance has been maintained.

9. Auditors are not authorized to issue instructions to branch managers regarding matters other than procedural irregularities. Any recommendations for changes in established procedures should be forwarded in a separate letter to the Audit and Inspection Department.

10. Auditors should freely discuss their findings with the Branch Manager to avoid unnecessary disputes later. Discussions will help reduce irregularities and improve branch operations. If any matter is sensitive, it should be reported in a confidential letter to the CEO/HO. Auditors should clarify that their opinions are not instructions.

11. Before commenting on employee matters, auditors should make an independent assessment and not be influenced by the branch manager or staff.

12. The auditor should act as an advisor to the branch staff during the audit. While highlighting anomalies, the report should also consider the challenges faced by employees. Reports should be clear, relevant, concise, and follow applicable sampling norms.

13. The auditor must submit a list of irregularities observed during the audit to the Branch Manager daily, requesting immediate rectification. Both the branch manager and auditor share the responsibility for on-the-spot corrections. An indicative list of other checkpoints for internal audit is provided in Annexure 1, supported by structured formats and guidelines issued by HO.

V. Periodicity of Audit

The allocation of audit resources to branches is linked to their risk profiles through periodicity differentials. The frequency of audit under the Risk Focused Audit System is uniformly set at:

• 12 months for high-risk branches.
• 18 months for medium-risk branches.
• 18 months for low-risk branches.

The Audit and Inspection Department will identify branches for risk-focused internal audits based on previous assessments. After identifying branches, an audit plan will be prepared, noting the due dates. The new format provided by SMF includes various parameters for auditing.

Core Parameters	Maximum Scores
BUSINESS DEVELOPMENT	100
CREDIT RISK MANAGEMENT	45
OPERATIONAL RISK MANAGEMENT	410
EXTERNAL COMPLIANCE	30
SELF AUDIT	10
TOTAL	1000

Grade	Score Range
WELL CONTROLLED A+	850 & ABOVE
ADEQUATELY CONTROLLED A	700 TO 849
MODERATELY CONTROLLED B	600 TO 699
UNSATISFACTORY CONTROLLED C	BELOW 600

TIME LIMIT FOR DISPOSAL I&A REPORTED BY BRANCH: 45 DAYS FROM THE DATE OF REPORT

Independent Risk Analysis

• 1. The Audit and Inspection Department shall prepare an annual audit plan for a risk-focused internal audit system based on the risk profile of each auditee entity.


• 2. The SMF format for reporting should be reviewed periodically, and if there is a major change, that change should be reflected in the form of additional information included immediately in the SMF format.


• 3. If there are no previous SMF reports, then the auditors will do their risk profiling based on the last two inspection reports.


• 4. Auditors must carefully allocate scores against each parameter in the audit format questionnaire for branch performance under various business and functional areas. If a parameter does not apply to a branch, the total score should be normalized by a percentage.


• 5. Auditors are advised to keep themselves abreast of the latest developments in the banking industry and our SMF by referring to various circulars issued by the SMF, which are available on the intranet as well as on the internet on the SMF website.


• 6. Rectification of Irregularities on the Spot:
  Guidelines have been issued to auditing officers to encourage them to correct on-the-spot irregularities. At the end of each day of the inspection period, the inspection officer will hand over a list of irregularities noticed during the day to the Branch Manager/Accountant for rectification. Branches/offices should take full advantage of this opportunity. Adequate score and resulting good rating under the revised SMF system can be achieved if past audit irregularities and concurrent audit irregularities are rectified and spot rectification of the current SMF is carried out.


• 7. Exit Meeting:
  It is the responsibility of all auditors to conduct an 'Exit' meeting with the Branch Head and all other employees after the conclusion of the audit. This exercise provides an opportunity for useful interaction between the auditor and the branch staff.


• 8. Reporting System:
  Submission of Special Report:
  Auditors should submit their special reports directly to the Chairman Head Office without waiting for the completion of monthly quarterly reports in the following circumstances:
  • If the irregularities are related to the credit portfolio, the report should also be sent to the MD/Head Office.
  • Shortages of cash found during verification.
  • Any fraudulent transaction noticed.
  • Any serious irregularity in the operation of any account, including suspicious transactions or violation of KYC/AML criteria that may require immediate attention from higher authorities.
  • Poor operations in borrowable accounts or abnormal operations due to which the accounts may go into NPA in the near future.
  It may be necessary for the auditors to bring any other comments to the notice of higher authority in the interest of the branch/SMF.


• 9. Closing Process:
  The recommendation must necessarily be accompanied by a Clean Compliance Certificate in tabular format along with audit observations and branch office observations. On receipt of audit recommendations from the Office, the Head Office Audit and Inspection Department, MD, and Chairman Head Office will close the report after being satisfied about the compliance.


• 10. Qualified Compliance:
  Correction of 100% of the observations in the audit report may not be possible within the specified time frame. In such cases, the closing authority will consider after assessing the overall risk factors.


• 11. Risk Mitigation:
  Mitigation of risk factors in all branches will be ensured by the concerned office and if necessary, their efforts will also be complemented by the Head Office in case of high-risk branches.


• 12. Policy Review:
  The annual review of the policy will be placed before the Board for recommendation to the Board for approval. The approved revised policy and guidelines will remain in force until the next review.

Information in the Next Meeting:
Any guidelines issued by regulators regarding concurrent audit and/or any other matter dealt with by this policy shall be treated as an integral part of this policy. This policy is for operational purposes with immediate effect.

accepting dates 1/08/2024:

REMUNERATION POLICY  

At Higher Level:

1. Salary/allowances etc., on annual basis (as per package/as per instructions of board meeting)

2. T.A - Actual

3. D.A - 1000 per day

4. Loading Boarding - 3000 per day

5. Local Journey - 18/- by own vehicle
4/- km by bike

Other Facilities Provided:
Car loans/mediclaim policy etc.

Expenses in Meeting (Director/Management):
Food/Refreshments - Actual

Meeting Allowance - 1000 per meeting

Management Level:

1. Salary/allowances etc., on annual basis (as per package/as per instructions of board meeting)

2. T.A - Actual

3. D.A - Rs 500/- per day

4. Loading Boarding - 2000/- per day

5. Local Journey - 12/- by own vehicle
4/- km by bike

Other Facilities Provided:
Car loans/mediclaim policy etc.

At Lower Level:

1. Honorarium Service:
* Manager/Smx - 8000/- Incentive amount (On work basis)
* Agent - 2% (maximum) per loan incentive
* Recovery Agent - Maximum 6% of recovery of outstanding amount up to 1 year
* 10% on recovery of NPA more than 1 year

2. Contract/Agency Hired – Manager/Rs. 8000/-
* Incentive amount – 3% annually (maximum)

3. Basic Permanent Nature:
* Manager/Smx - 8000/- Incentive amount - 5% (maximum)
* Annual salary increase - 3% (maximum)
* Account Assistant/Other - 7000/-
* Incentive amount - 3% (maximum)
* Annual salary increase - 3% (maximum)

4. T.A - Actual
* D.A - 200/-
* Loading Boarding - 700/-
* Local Travel - Actual
* 2/- km by own vehicle

5. Approval is required before expenditure at management level.

Contingencies:
* CEO - 50000
* MD - up to 100000
* Manager - up to Rs 1000

Software/Equipment Purchase:
* Sanction amount - 300000 (maximum)
* Competent Officer - MD/CFO/CEO

Office Expenses: 200000 (per year/per office)

CA/External Audit: Actual

CEO and MD Authorization: CEO and MD will be authorized to sign on behalf of SMF for all types of MOUs.

Board Responsibility: The Board has the maximum responsibility to increase or decrease the limit of the above expenditure, purchase etc.

Advocate Fee:
Due fee for issuing notice before filing civil case:
Where the outstanding amount exceeds Rs. 1 lakh - 1000/- Clerical and retail expenses Rs. 250

Where the outstanding amount exceeds Rs. 1.5 lakh and Rs. Fee amount is less than Rs. 5 lakh - 1500/- Clerical and retail expenses 400

Fees payable on filing after Civil (outstanding loan amount is less than Rs. 5 lakh):
Rupee. Rs. 2000/- per lakh or part thereof. Maximum Rs. 6000/- and actual stamp duty and percentage of the outstanding loan amount as clerical and retail expenses are payable.

Fees to be Paid to State Wise Advocate:
Up to 30 percent of the total fee while filing a civil case in the court.
30 percent at the time of verification of affidavit/app documents and cross-examination and counter-examination of bank witnesses.
30 percent at the time of passing of the decree in favor of the bank.
10 percent after recovery of the passed decree.

Fund taking policy

Sudhanshu Micro Service Foundation Company has to take all funds through legal means for its operations and development and to provide services, so be careful.

* If taken from director or relative, the interest rate will be maximum 13.5%.

* All agreements should be finalized in consultation with CLO before signing and MD/CEO will sign on behalf of the company.

* If there is a need to issue debentures, the CEO will do it as per the rules with the advice of CS/CA.

* MD will be responsible for finalizing all agreements and fixing fees/security amounts (as per various policies of SMF, keeping in mind the maximum limits). Where there is no limit or determination of amount, the decision should be taken with discretion in the interest of the company.

* The CEO is authorized on behalf of the company to take loans or grants and services from other companies and financial institutions.

* Item to be raised in the board meeting if necessary in special circumstances.

Company Branches Extension Policy  

Sudhanshu Micro Finance Company will have to expand its bank for its operational facilities and management and customer service, for which guidelines are issued.

Location Selection - Customer outreach and management survey, asking for report from agency and giving report based on assessment facts.

Income, expenditure, staff pattern on the bank, 6 months estimated expenditure, recovery model, reporting system, all detailed report will be presented by the CEO, on the report the team under the chairmanship of the company MD will take a decision on the bank extension and get it approved in the upcoming board meeting.

After approval by the Board of Directors, bank level expenditure, staff etc. expenditure can be released as per the policy in the budget head.

Grievance Redressal Mechanism  

Grievance Redressal Process

a) The company has established a grievance redressal process to address any instances of employee misconduct. Disciplinary action will be taken promptly against any employee involved in such behavior. Customers can find the telephone numbers of the branch manager and field officers in the center's file, or they can register complaints in person at the branch.

b) If a customer is dissatisfied with the response from the Branch Manager, they can escalate their complaint by contacting the company's customer service number, available on all working days from 9:30 AM to 5:30 PM.

c) For customer-related complaints, please reach out to the Grievance Redressal Officer, Shri Pratik Joshi, at +917742933629 during the hours mentioned above. Customers can also lodge complaints or send emails to sudhanshumicroservice@gmail.com. When calling, customers should provide their customer ID and branch name. If a loan application has been submitted but not granted, customers should reference the loan application number found on their acknowledgment slip.

d) If a dispute remains unresolved after one month, customers may approach the Officer-in-Charge or the Director, HOD, at SHOP NO. 11, SHUBHAS NAGAR, NEAR GAYATRI GARDEN, COLLEGE ROAD, BANSWARA. Complaints, disputes, and suggestions can be registered in the complaint register available at all branches, or customers may utilize the complaint box installed at each branch.

Higher-Level Staff Involvement

1) Senior staff members, including managers, will address and discuss customer complaints and issues. Authorized senior employees are empowered to resolve immediate customer needs at the regional level.

Review of Compliance with the Fair Practices Code

a) The CEO/COO will review compliance with the code of conduct and the functioning of the grievance redressal mechanism quarterly.

b) A quarterly report on compliance with the Fair Practices Code and the grievance redressal mechanism will be presented to the Board of Directors.

c) The Board of Directors will review the compliance of the Fair Practices Code and the effectiveness of the grievance redressal mechanism at various management levels on a quarterly basis.

Franchisee/Channel Partner Policy  

Sudhanshu Micro Service (SMF) Franchise Process

Sudhanshu Micro Service, along with its channel partners and franchisees, offers the rights to the company's name, logo, business model, and products to third parties. Typically, there is an intermediary who pays funds to the franchisor in exchange for these rights, gaining access to a ready-made business system.

1. Business Valuation
Evaluate the business to determine the profitability of SMF, market demand, and how SMF's business model differs from competitors. Based on this assessment, establish the franchise fee, security amount, and other charges, involving the CEO, MD, or CLO in the decision-making process.

2. Publicity
To attract potential franchisees, it is essential to promote the franchise opportunity. This information should be featured prominently on the SMF website under a menu option such as "PARTNER WITH US," "BUSINESS WITH US," "OPEN FRANCHISE," or "GROW WITH US." A request form should be available to capture the name, email, city, mobile number, and message of interested individuals. Additionally, use social media platforms like Facebook, Instagram, Twitter, and LinkedIn, as well as newspaper advertisements, to invite inquiries.

3. Selection
SMF receives numerous franchise requests, and it is crucial to vet candidates thoroughly. Assess whether applicants possess the capability to operate the franchise by reviewing their past business records and cross-checking this information with your team. Only after ensuring suitability should a candidate be selected.
- The fixed price and security amount from the chosen partner must be deposited upon signing the agreement.
- The CLO, CEO, MD, and CTO will participate in the selection process.
- Franchisees must adhere to SMF’s guidelines and regulations.
- Outlets should be established according to company specifications.
- Franchisees will operate under bank supervision and must submit reports accordingly.

4. Legal Documentation
A franchise agreement must be prepared, detailing the permissions granted to the franchisee, including the use of brand name, logo, and trademarks. This agreement should outline all business guidelines and company policies that must be followed. The CEO/MD will be authorized to sign on behalf of SMF, while the franchisee will sign for themselves.
- A Franchise Disclosure Document should include franchise fees, royalties, operational systems, marketing guidelines, and agency-related rules, as approved by the company’s legal counsel.
- Specify the training and support provided by SMF for operating the franchise.

5. Training and Support
Following the finalization of the agreement, training will commence for the new franchisee.
- Franchisees must recruit and train employees on customer service, file preparation, and other operational tasks. This training may occur on-site, via video, or over the phone.
- Software operations and IT responsibilities will be managed under the CEO/Manager's guidance.
- The CEO will design a unique product for the franchisee.
- The CEO should consult with CACS/CS to determine compliance with Government of India regulations regarding franchise grants.
- Throughout this process, all company rights should remain protected, with the Board of Directors issuing advisories as needed.

Franchise Models
- Job Franchise: Low-investment model suitable for individual ownership, often operated from home or mobile locations, offering services like cleaning or lawn care.
- Investment Franchise: Large-scale ventures requiring significant capital, typically managed by experienced professionals, such as hotel chains or large restaurant franchises.
- Distribution Franchise: Allows franchisees to sell products under their own branding, e.g., car dealerships and appliance retailers.
- Business Format Franchise: Provides all necessary elements for operation, including equipment, training, and ongoing support, common in fast-food and personal care industries.
- Conversion Franchise: Involves integrating independent businesses into the franchisor's network, leveraging existing operations in industries like real estate or medical clinics.
- Company-Owned, Company-Operated (COCO): The franchisor directly manages outlets to refine business concepts before franchising.
- Company-Owned, Franchise-Operated (COFO): Franchisor retains ownership while entrusting daily operations to franchisees, who manage staffing and customer service.
- Franchise-Owned, Franchise-Operated (FOFO): Franchisees own and operate units, adhering to the franchisor's guidelines to maintain brand consistency.
- Franchise-Owned, Company-Operated (FOCO): Franchisees own the units, but the franchisor handles daily operations to ensure brand uniformity.

6. Exit Policy
- SMF reserves the right to terminate franchise partnerships without cause. Security deposits will be returned to franchisees within one month, as stipulated in the agreement.
- Upon exit, the franchisee will receive their security deposit and any remaining funds as per the agreement, with adjustments made for outstanding dues.
- Payments will be made after deducting any charges or dues.
- Amendments to the policy should be made periodically and be applicable to all franchisees, both new and existing, as specified in the agreement.

LOAN POLICY

1.Customer Registration - Individual Unique Customer ID will be Generated by (Branch, Agent, Franchise Holder Channel Partner and generated by self)

2.Loan applications and their process

> All communications with the borrower will be conducted in the local language or a language understood by the borrower.

> The loan application forms of the company will include necessary information that impacts the interests of the borrower, enabling meaningful comparisons with terms and conditions offered by other NBFCs, thereby facilitating informed decision-making by the borrower.

> The loan application form will specify the required documents to be submitted along with the application.

> If any additional details or documents are required, borrowers will be informed immediately.

> The company will have a system for acknowledging receipt of all loan applications. The acknowledgment will indicate the time frame within which the loan applications will be processed.

> Loan applications can be submitted online or offline through Customer ID by various channels, including branch offices, agents, franchise holders, channel partners, or directly by the customer.

3.Loan Appraisal and Terms/Conditions

> The company will inform the borrower in writing, in the local language or a language understood by the borrower, through the sanction letter or other means. This communication will include the terms and conditions, such as the amount of the loan sanctioned, the annual interest rate, and the method of its application. The borrower will be required to agree to these terms and conditions, and the company will retain a record of this acceptance.

> The company will clearly highlight, in bold letters, the penal interest that will be charged for late repayment in the loan agreement.

> A copy of the loan agreement, preferably in the local language understood by the borrower, along with copies of all annexures mentioned in the loan agreement, will be provided to all borrowers at the time of loan sanction or disbursement.

> The CIBIL check process will be conducted, and a report will be maintained. KYC verification will be done and uploaded by authorized employees.

4. Disbursement of loan including changes in terms and conditions.

> The Company will provide information to the borrower in the local language or in a language understood by the borrower, including disbursement schedule, interest rates, service charges, prepayment charges, etc. The company should also ensure that changes in interest rates and charges are made with prospective effect only. An appropriate condition in this regard should be included in the loan agreement.

> The decision to withdraw/accelerate payment or execution under the agreement will be in accordance with the loan agreement.

5. Regulation of interest rate

> The Board of Directors shall adopt an interest rate model to determine the rates charged on loans and advances, as well as processing and other charges. This will take into account relevant factors such as cost of funds, margin, and risk premium. The rationale for classifying interest rates and the different rates for various borrower categories will be explained to the borrower in the application form and clearly communicated in the sanction letter.

> Information regarding interest rates and the classification of risks will be made available on the company's website. This information should be updated as interest rates change.

> Interest rates will be annualized to ensure that borrowers are aware of the exact rates charged on their accounts.

> The interest rate will be determined based on factors such as the cost of borrowed funds, matching period costs, market liquidity, competition, customer relationship duration, and cost of disbursement.

> Additionally, interest rates will consider the credit and default risks associated with the products and customers, taking into account factors like customer segment, profile, professional qualifications, income stability, repayment capacity, past repayment history, external ratings, and industry trends.

> SMF may implement an interest rate model where the interest rate for the same product and period varies among customers, based on the aforementioned factors. Therefore, the applicable interest rate will differ from customer to customer.

> Customers will be informed of the annual interest rate, which may be fixed, floating, or variable. The key lending rate for floating rates will be reviewed quarterly. In cases of fluctuating interest rates, the rate will be reviewed and reset quarterly. Interest will be calculated on a daily balance and charged on a monthly balance or as decided by the Empowered Committee per applicable rules and regulations.

> Information about interest rates will be provided to customers at the time of loan sanction. Equal installments for interest and principal will also be communicated.

> Any changes in interest rates will take effect prospectively, and customers will be informed of any changes in interest or other charges.

> If deemed appropriate, SMF may allow deferment of interest payments and principal repayments, along with appropriate pricing adjustments.

> In the case of phased disbursement, the interest rate will be reviewed and may vary according to the rate prevailing at the time of disbursement or as decided by SMF.

> The applicable interest rate, benchmark prime lending rate, and other charges will be made available on the website and updated regularly.

> Loan applications will be verified by authorized employees on the website.

6. Penal Interest / Late Payment Charges

> In addition to normal interest, SMF may charge penal interest/late payment charges for any delay or default in payment of any outstanding amount. These penal interest/late payment charges for different products or facilities will be decided by SMF from time to time.

> Any claim for refund or waiver of such charges/penal interest/additional interest will not ordinarily be considered by SMF and it is at the sole discretion of SMF to deal with such requests, if any.

7. Processing/Documentation and other charges

> All processing/documentation and other charges to be charged are clearly stated in the loan documents. They vary depending on the loan product, risk limit, customer segment, geographical location and generally reflect the costs incurred in providing services to customers. The practices followed by other competitors in the market will also be taken into account while deciding the fee.

8. Disbursal and Loan Posting on the Microfinance Co. Website

If the loan is approved, the loan is disbursed to the client within 48 hours. The process is fast to enable the MFI to remain competitive among rival MFIs. Once the loan has been approved, the Microfinance Co, correspondent uses the information sent by the loan officer to create a loan profile in the Microfinance Co system. This can then be published on the website , ready to be funded.

Loan Application will be Reverified By Authorize Employee On Website and mou and other total document verify and upload and sanction letter be disbursed.

9. Fund Transfer

After verifying all the MOUs in accordance with the loan sanction letter, the loan amount will be debited from the bank account and credited to the loan applicant's account.

Loan Power Distribution:

Sudhanshu Micro Service Foundation. has distributed power for our management.

1. Head Quarter /Corporates Office

1.1 Loan Applications - All applications received online or offline are to be forwarded by the CTO or any authorized employee.

1.2 Loan Approval 1st - Verification involves checking all documents such as KYC, CIBIL, and MOU, which are either uploaded on the website or attested offline, and then verified by the MD or any authorized employee.

1.3 Loan Approval 2nd - Further verification includes checking all documents like KYC, CIBIL, and MOU, which are either uploaded on the website or attested offline, and then verified by the CLO or CTO.

1.4 Disbursement - After verifying all the MOUs as per the loan sanction letter, the loan amount will be debited from the bank account (Sudhanshu Micro Service) and credited to the loan applicant's account by the CEO.

2. Branch Office

2.1 Loan Applications - All applications received online or offline are to be forwarded by any authorized employee.

2.2 Loan Approval 1st - Verification involves checking all documents such as KYC, CIBIL, and MOU, which are either uploaded on the website or attested offline, and then verified by the Branch Manager or any authorized employee.

2.3 Loan Approval 2nd - Further verification includes checking all documents like KYC, CIBIL, and MOU, which are either uploaded on the website or attested offline, and then verified by the CEO or CFO.

2.4 Disbursement - After verifying all the MOUs as per the loan sanction letter, the loan amount will be debited from the bank account (Sudhanshu Micro Service) and credited to the loan applicant's account by the CEO.

3. Franchise holder / Channel partner

3.1 Loan Applications - All applications received online or offline are to be forwarded by any authorized employee.

3.2 Loan Approval 1st - Verification involves checking all documents such as KYC, CIBIL report, and MOU, which are either uploaded on the website or attested offline, and then verified by any authorized employee.

3.3 Loan Approval 2nd - Further verification includes checking all documents like KYC, CIBIL report, and MOU, followed by verification by the Branch Manager.

3.4 Disbursement - After verifying all MOUs as per the loan sanction letter, the loan amount will be debited from Sudhanshu Micro Service's bank account and credited to the loan applicant's account by the CEO.

Loan Recovery streategy

If any modifications are made in the power distribution, the Board of Directors has the rights to modify.

Loan recovery is a critical aspect of running a finance business, especially in the context of loans and credit services. Ensuring timely and effective loan recovery supports the financial health of SMF and minimizes the impact of delinquent or defaulted loans. Strategies for successful loan recovery in SMF include:

1. Clear Loan Terms and Communication

2. Proactive Follow-Up

3. Flexible Payment Options

4. Early Intervention

5. Financial Counseling

6. Negotiation and Restructuring

7. Debt Collection Agencies

8. Regular Reporting and Analysis

9. Data Management and Automation

10. Maintain Professionalism

loan collection

The loan collection procedure for a finance business involves a series of steps designed by SMF to ensure timely repayment of loans and manage delinquencies effectively. Here's a general outline of the procedure:

1. Pre-Disbursement Education

2. Loan Disbursement

3. Communication of Repayment Schedule

4. Early Repayment Reminders

5. Grace Period

6. First Overdue Reminder

7. Follow-Up Communications

8. Delinquency Categorization

9. Personal Contact

10. Negotiation and Repayment Plans

11. Legal Action

12. Record Keeping

13. Debt Collection Agencies (As a Last Resort)

14. Resolution and Closure

collection policy

1. Objective and Scope

2. Responsibilities

3. Communication Channels

4. Pre-Loan Education

5. Repayment Schedule and Grace Period

6. Escalation Process

7. Communication Strategy

8. Negotiation and Repayment Plans

9. Data Privacy and Protection

10. Documentation and Record Keeping

11. Training and Development

12. Continuous Improvement

13. Legal Compliance

INTRODUTION IN RECOVERY POLICY

The Collections & Recovery Policy of SUDHANDHU MICRO SERVICE FOUNDATION (hereafter referred as “the SMF” )shall aim at making the recovery process faster, so that Gross NPA level is maintained as per the risk appetite of the SMF.

It is essential for a sound NPA management system to have functionality allowing for quick identification of non-performing advances, their containment at minimum levels and ensuring that their impingement on financials of SMF are minimum.

1.1. Objectives & Principles

The quality and performances of advances have a direct bearing on the profitability of SMF. Despite an efficient credit appraisal, disbursement and monitoring mechanism, problems can still arise due to various factors and give scope for Non-Performing Assets (NPA). These factors may be internal or external.

Key objectives of the policy are:

► The Policy is aimed at strengthening the management and recovery of NPAs and proactive initiatives to closely monitor existing accounts.

► The Policy continues to stress the present system of early identification and reporting of all existing and potential problem loans to prevent the incidence of NPAs.

► The Loan Review Mechanism will be triggered upon detection of early warning signals to ensure an effective and quicker response for correction.

► The Policy emphasizes a broad approach, including critical parameters for the collection, recovery, and resolution of loans through rehabilitation, compromise settlements, etc.

► The Policy also proposes an approach for cleansing our NPA portfolio through judicious write-offs.

► The Policy aims to improve the internal efficiency of the recovery machinery, thus enhancing the profitability of SMF.

Guiding Principles:

► SMF's recovery procedure will be based on legal and acceptable practices.

► SMF will treat its defaulters with respect and dignity while remaining focused on recovery.

► SMF will follow only ethical practices and will not resort to unduly coercive tactics in the recovery of NPAs.

► Repossession of security will occur only for the recovery of dues and not to deprive the borrower of their security. Repossession, valuation, and realization of security will always be done in a fair and transparent manner.

1.2. Policy Review & Approval process

The Policy would be reviewed and updated at least on an annual basis by the Head-Credit with a sign off from the Head-Risk and Compliance and the MD & CEO. The reviewed and updated policy would be submitted to Risk Management Committee of the Board (“SMF”) for recommendation and approval of the Board. The minutes of meeting of the committee and the Board would be documented.

Key Definitions

Default

Default is considered to have occurred when an asset is classified as a non-performing asset (‘NPA’).

All defaults will be recorded in accordance with the reference definition of default detailed in the Credit policy.

Non-Performing Assets

An asset, including a leased asset, becomes non-performing when it ceases to generate income for the SMF. A "Non-Performing Asset" (NPA) is defined as a loan or an advance where:

• Interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a Term Loan.


• Any amount to be received remains overdue for a period of more than 90 days in respect of other accounts.

Overdue

Any amount due to the SMF under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the SMF.

3. Collections

3.1. Introduction

The Collections & Recovery policy of SMF is built around dignity and respect for customers. SMF will not follow policies that are unduly coercive in the collection of dues. The policy is founded on courtesy, fair treatment, and persuasion. SMF believes in following fair practices with regard to the collection of dues, thereby fostering customer confidence and long-term relationships.

The repayment schedule for any loan sanctioned by SMF will be fixed, taking into account the paying capacity and cash flow pattern of the borrower. SMF will keep the customer informed about the method of calculation of interest and how the Equated Monthly Instalments (EMI) or payments through any other mode of repayment will be appropriated against interest and principal due from the customers.

SMF expects customers to adhere to the repayment schedule agreed upon and to approach SMF for assistance and guidance in case of genuine difficulty in meeting repayment obligations.

3.2. Collection Mechanisms

The guidelines related to the collection mechanisms for loan products offered by SMF are as stated below:

3.2.1. Giving Notice to Borrowers

3.3. Product-Specific Collection Guidelines

3.3.1. Micro Banking Loans

Collections are divided into three categories for group loans:

• Regular Collection: This is the amount collected as per the instalments (principal & interest) of the day against a borrower at the Sangam meeting by the Officer.


• Advance Collection: This is the amount collected over and above the actual instalment in the Collection Sheet against a borrower at the Sangam meeting.


• Late/Overdue Collection: If an instalment/due amount is not received on the assigned day, it becomes overdue. Overdue collections are undertaken in two ways:
  • At the Sangam Meeting: During the normal instalment collection process, the overdue amount is also collected as per demand reflected in the Collection Sheet.
  
  
  • Outside the Sangam Meetings: The Officer shall follow up with the overdue clients by visiting their place before or after the Sangam meetings along with the other Sangam Office bearers.

4. Recovery & Resolution Mechanism

4.1. Introduction

► Timely restructuring/rehabilitation in deserving cases should be ensured.

► SMF shall introduce MIS to monitor overdue and rephrased accounts closely.

► SMF may opt for One Time Settlement where chances of entire recovery are remote/time-consuming.

► SMF will enforce the provisions of identifying and declaring willful defaulters in accordance with RBI guidelines. General consistency in approach is expected while dealing with willful defaulters. The approach for recovery should be practical and non-prejudiced. Fair treatment and persuasion are the basic principles of the recovery mechanism. Enforcement of security should be undertaken only where restructuring is involved.

Engagement of Recovery Agents
SMF may utilize the services of recovery agents for the collection of dues and repossession of securities. Recovery agents will be appointed as per regulatory guidelines issued in this regard. In this respect:

► The name and address of all Recovery Agents on SMF’s approved panel will be placed on their website for information.

► Only recovery agents from the approved panels will be engaged by SMF.

► The recovery agents engaged by SMF will be required to follow a code of conduct covering their dealings with customers.

4.3.1. Identification of Non-Willful Individual Defaults of SMF

SMF shall view sympathetically all genuine cases of non-willful defaults due to sickness in the family, seasonal variation in family income, sudden cash needs, late payment of salary, slowdown in business, etc. Regional Managers shall be delegated powers to allow time up to 30 days to regularize such accounts. The decision for re-passing of the loan account will be taken centrally by the Credit Committee. In exceptional and deserving cases, the total term of the loan shall be extended by the Head of Micro Banking and Head of Retail Assets.

SMF shall use any of the following broad methods for the management of problem accounts:

1. Settlements/compromise

2. Legal action & recovery

3. Write-off

Employee Responsibilities

Managers, CEOs, and employees are responsible for timely loan recovery.

After checking, defaulters have to be reported in CIBIL.

Recovery can be done based on terms and conditions.

Penalties and Legal Action

If the loan is not repaid despite notices and reminders, the lender can impose penalties on the borrower or even take legal action. A payment default of a few days can still be rectified, but if payment is not made for more than a month or two, it can lead to serious losses.

Legal action against loan defaulters

As per the RBI order, the rights of the borrower will not be compromised at any time.

Breach of contract in case of loan repayment is not an offence, but the lender can approach the civil court to recover it.

If the loan has not been repaid for more than 180 days, the lender is allowed to file a case against the borrower under Section 138 of the Negotiable Instruments Act, 1881.

Sometimes unavoidable circumstances prevent borrowers from repaying their loans. Such cases would not be considered 'fraud', but the lender may work with the borrower to modify the repayment terms to ensure that the loan is repaid.

However, if the borrower's intention is proven to be fraudulent at the time of signing the loan agreement, a criminal case can be filed against the defaulter.

According to RBI, a 'willful defaulter' is a person who does the following:

• Default despite ability to pay
• Diversion of debt or funds
• Disposal or transfer of collateral property provided as security without the knowledge of the lender

In case of violation of any of the above, legal action will be taken against the culprit.

File Suit:

Make sure that all avenues of recovery have been exhausted. If the agreement is ineffective, then a suit should be filed.

Authority Levels:
• Lower level manager
• Real-time CEO level
• Company level: Power of attorney holder
• Legal action approval officer
• Branch Manager: up to Rs 25,000
• CEO on company: up to Rs 2 lakh
• Board of Directors on company: above Rs 2 lakh
• MD has the power to withdraw legal action
• CEO has the rights to hire Recovery Agents as per requirement.

Risk Management

SMF continuously assesses and manages the risk associated with its loan portfolio. Implement risk mitigation strategies and adjust lending criteria as needed.

Remember that effective loan recovery is a balance between enforcing contractual obligations and providing support to borrowers facing financial difficulties. By adopting a compassionate yet strategic approach, you can enhance your chances of successful loan recovery while maintaining a positive reputation in the finance industry.

Recovering loans without encountering major problems requires a combination of preventive measures, efficient processes, and open communication with borrowers. While it's impossible to completely eliminate challenges, here are some strategies that can help your finance business minimize loan recovery issues:

1. Strong Underwriting and Risk Assessment:

2. Clear Loan Terms and Agreements:

3. Comprehensive Borrower Education:

4. Effective Communication:

5. Flexible Repayment Options:

6. Early Intervention:

7. Financial Counseling and Support:

8. Automation and Technology:

9. Negotiation and Restructuring:

10. Regular Monitoring and Reporting:

11. Customer-Centric Approach:

12. Legal Compliance:

13. Insurance of Loan Applicants:

COMPLIANCES ARE VERY STRICT & TO BE FOLLOWED Includes:

Auditor Appointment: Within 30 days of appointment by BOD.

Conducting Board Meetings: First board meeting within 30 days & twice a year.

Conducting AGM: First AGM within 9 months of closing of FY of the year of registration & in other cases, 6 months from the end of the FY.

Filing of AOC 4 & MGT 7: Annual filing in ROC.

Income Tax Return: To be filed as required.

Other Statutory Returns: Including TDS, GST, TCS, EPF, ESIC, etc., as applicable.

Compliance: Any required compliance done by CEO/CFO with guidance from CA/CS.

Rebate account -

That amount should be deposited in the Rebate account which the CEO or manager is completely sure that the amount cannot be recovered by any means and all efforts have been made, then that amount should be deposited.

Power to write off =

v CEO: 100,000/-

Manager: 10,000/-

Note: The amount above this is authorized by the Board.