Where Angels Prey

Where Angels Prey is a novel by Ramesh S Arunachalam. Please refer to www.whereangelsprey.com for more information

Wednesday, October 20, 2010

Corporate Governance in Indian MFIs: Changes Required to Current Practice

India’s MF landscape is largely dominated by promoter-owned/controlled MFIs (there are some exceptions to this). Many such promoter-owned MFIs have distinct characteristics (not exhaustive):

1. Inadequate checks and balance over executive decision making and behaviour,

2. Lack of transparent reporting to the outside world,

3. Lack of truly independent board nomination sub-committees,

4. Insufficient transparency about ownership/control, related-party transactions and the (group’s) overall financial position,

5. Promoters’ friends/families often leverage themselves highly to acquire stake in order to maintain control over the MFIs, and

6. Conflicts of interest at various levels including board and senior management level

Without question, these Corporate Governance practices will have to change if MFIs are to be viewed positively

I would like to sign off by quoting Dr N R Narayana Murthy, who while addressing the students of the George Washington University in 2006, stated what corporate governance meant to him: ‘Corporate governance, to me, is about maximizing shareholder value legally, ethically and on a sustainable basis, while ensuring fairness to every stakeholder - the company’s customers, employees, investors, vendor-partners, the government of the land and the community.’

I sincerely hope that MFIs attempt and try to practice this in full earnest.

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