Transparency and governance issues plague the microfinance sector, according to a new report on microfinance institutions (MFIs) released by Sa-Dhan, a conglomerate of over 250 MFIs. In the first systematic attempt to collate and analyse social performance data of the MFIs the report has done some serious soul-searching for the sector. It says, “Information asymmetry between lender and borrower is especially pronounced in microfinance where the majority of its clients are illiterate.

“The work of microfinance is complex and social performance needs an important bench mark in our way forward whether client protection, or training towards customer protection. The first report shows where the industry is on this particular matter,” says Mathew Titus, executive director of Sa-Dhan

Problems of communication are endemic in the industry, says the report. “Two-thirds of the MFIs tell clients about the effective interest rate, processing charges, and insurance details but many do not specifically tell about the prepayment terms and charges to the clients.”

The report also mentioned that sharing of information by the MFIs at the level of branches is not very common. Sa-Dhan also pointed out that there is almost no grievance redressal mechanisms in MFIs. “57 percent of MFIs do not inform client about grievance redressal system,” the report held.

Seventy-six percent of MFIs said that summary of grievances are not presented to board and senior management, the report said.

The report mentioned the good part of MFIs is that it reaches out to women. “Around 85 percent of MFIs reach out to women clients.

The report suggested that Indian MFIs which is a single product should diversify its products and services to create ‘real’ financial inclusion.