The state government issued Direct Selling Agent (DSA) guidelines to regulate the industry and protect customers from fraudulent practices. The DSA guidelines were first introduced by the Ministry of Corporate Affairs (MCA) in 2016, and since then, have been amended several times to protect the interests of the consumers. While there is an ongoing debate regarding the rigidity of the DSA guidelines, they are essential in protecting consumer interests. Not just the public, DSA agents also benefit from having a structured set of rules. Since every lending firm in India abides by these norms, banks and NBFCs are now bound by law to pay their agents their fair share of commission fees.
How do DSA loan partners work?
DSA loan partners work on behalf of the lending firms to bring quality products or services to potential buyers without any middlemen interference. They represent their lending institutions and earn commissions based on the number of loans they sell in a month. DSA partners run their contacts, cold-call potential buyers, and send out email blasts to attract new clients. Once an interested customer pings them for more details, they explain the features of their lender’s products and try to make a sale.
Why did the state government issue DSA guidelines in India?
With the rising number of DSA companies in India, the state government, the RBI, and the MCA saw it fit to introduce some strict guidelines to encourage best practices.
- Customer protection: The government came up with the DSA guidelines to protect consumers from unethical or fraudulent practices. The DSA guidelines ensure that loan agents are bound to disclose every detail about the product, its features, and their business model to their customers. The DSA loan partners must maintain transparency at all times.
- Regulatory measures: Another benefit of having a structured code for DSA agents in the country is that there is no confusion about how DSA or loan agents should operate. All lending firms in the country are supposed to abide by those laws and provide the same kind of ethical and helpful services to their customers.
- Employment opportunities: The DSA industry provides employment opportunities to several people in the country. DSA partners have been in huge demand for the last couple of years, owing to the rising consciousness among middle-class people. Banks and NBFCs do not have the manpower to tend to each and every client’s problem. Hence, DSA loan agents fill in the gap to provide customized advice to potential buyers.
- Entrepreneurship opportunities: There is no limit to the amount of money DSA loan agents can earn in a month. DSA partners also enjoy flexibility in choosing their working hours. With DSA guidelines in place, more and more people would take up such a work life, where they are in charge of making their own decisions, which in turn would positively impact the growth of our country’s economy.
Key provisions of the DSA loan partner guidelines
Here are some of the key provisions of the 2016 DSA loan guidelines. It has been revised several times since then to protect the integrity of the customers.
- Protection of consumer interests: DSAs have to be transparent with their customers and disclose their product’s benefits and features. They must make sure that their buyers understand the terms and conditions of the product they are signing up for. DSA guidelines strictly forbid agents from misleading or selling fraudulent products to their customers.
- Mechanism to address grievances: The DSA guidelines provide a mechanism for customers to raise complaints. The authorities track these complaints and take appropriate action to address them.
- Mandatory registration: DSA companies have to register themselves with the Reserve Bank of India (RBI) and the Ministry of Corporate Affairs (MCA) before commencing business. This is a mechanism to recognize legitimate businesses and prevent customers from falling into fraudulent traps.
- Prohibition of pyramid schemes: The DSA guidelines strictly prohibit companies from operating pyramid schemes. DSA agents must be focused on addressing their customers’ needs. Lending firms should not encourage DSA partners to hire other agents to advance their careers. DSA loan agents must not mislead their customers, make offensive statements, or engage in unfair trade practices.
- Mandatory cooling period: Under the DSA guidelines, the DSA partners are bound to cancel a contract with any buyer within a particular cooling period. The period may vary from lender to lender, however, if a customer wants to withdraw their contract, they may do so within that period.
- Proper income disclosure: The DSA companies must be transparent with their agents and pay them their dues on time. The DSA agreement must have every aspect of their pay structure in detail. And, lending firms must pay them their cut from the total loan amount they sold on time.
- Adequate training period: The DSA guidelines also ensure that DSA loan partners receive mandatory training before going off to pitch their products. Lending firms like Andromeda Loans provide on-job training modules for their agents, which help them hone their negotiation skills. The agents must have a thorough knowledge of their company’s products to provide valuable advice to their clients.
- Registration renewal: The DSA guidelines also state that companies must renew their registration with the regulatory authorities on time and must comply with all their rules and regulations. The only intent behind the strict enforcement of the DSA guidelines is to protect customers from fraudulent practices.
Rajat Banerji, the Chairman of the Indian Direct Selling Association (IDSA) said, “The direct selling sector in India… has provided sustainable self-employment and micro-entrepreneurship opportunities for nearly 80 lakh Indians and has demonstrated consistent and sustained growth with a CAGR of 15.7% over last four financial years.” It is no wonder that the RBI and MCA have stepped up their game and brought out the above DSA guidelines in 2016.
With the current development of technology and the growth of the DSA industry in India, the government has taken a keen interest in helping DSA companies establish themselves. This set of guidelines was revised in 2021 with the government strictly forbidding pyramid schemes and multi-level marketing in direct-selling companies. The clear guidelines, customer protection clauses, and grievance redressal mechanisms for DSA partners only add to the credibility of the industry and further promote DSA services in the country.