Debt Collection Procedures Under GN No. 679, Regulation 56.

Debt Collection Procedures Under GN No. 679, Regulation 56

Debt collection is a critical aspect of microfinance operations, ensuring the sustainability of lending institutions while protecting borrowers from unfair recovery practices. Regulation 56 of the Microfinance (Non-Deposit Taking Microfinance Service Providers) Regulations, GN No. 679 outlines specific procedures that microfinance service providers must follow when recovering loans.

According to Regulation 56(1), microfinance institutions (MFIs) must conduct loan recovery in line with the procedures set in their lending policies. However, to ensure compliance with consumer protection principles, Regulation 56(2) imposes several obligations on MFIs. These include issuing a 14-day written notice to the borrower before initiating recovery proceedings and prohibiting harassment, abuse, or oppression of borrowers and guarantors. Additionally, MFIs are restricted from using violence, illegal means, obscene language, or false and misleading representations during debt collection.

Under Regulation 56(3), MFIs cannot impose unauthorized interest, fees, or charges beyond what is agreed upon in the loan contract. Furthermore, Regulation 56(4) allows MFIs to engage licensed debt collectors, provided they comply with all regulatory requirements, including adherence to consumer protection principles and other relevant laws governing debt recovery.

These provisions aim to balance the need for effective debt recovery with the protection of borrowers from unethical collection practices, fostering a fair and transparent microfinance sector.