Where Angels Prey

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

Saturday, December 10, 2011

The Microfinance India Summit 2011: Bridging The Hiatus, Building Trust?

Ramesh S Arunachalam
The two-day summit is expected to analyze and introspect on the issues that have led to the erosion of trust with/in the sector. Additionally, the summit is to attempt and build consensus on how the sector can move forward

Come November-December and it is microfinance tourism time across the globe and India is no different. We have an annual Microfinance India summit, held at the sprawling five-star Ashoka Hotel in New Delhi annually where the industry stakeholders meet to discuss critical issues pertaining to the microfinance industry! This year’s summit themed as, “Bridging the Hiatus, Building Trust”, will be held on 12 and 13 December 2011.

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  1. Dear Ramesh,
    I read your blog post with interest. There was a reference to the last year's State of the Sector report and a question on its objectivity based on your reading of a paragraph on governance. Being the author of the report ( and objectivity and credibility matter to me more than anything else), I reject the insinuations made. The para on governance is much more than what you have quoted. If you had read the entire paragraph (in pages 41 and 42) you would have noticed other things there and gained a complete understanding of what it says on governance. The substance of the para on governance is:'There is a gradual improvement in governance over the years and boards and committees are
    working harder than in the past; and disclosure levels are increasing.Some of the promoter groups (especially large MFIs) engaged mal-governance, especially in transformation, using MBT route. Information availability in such cases was poor. the boards in such cases were complicit. It is difficult to get independent directors on MFI boards. Cousin boards and compliant independent directors should be avoided and directors should be put through governance workshops in order to improve governance. Representatives of equity investors on boards influenced changes for the better in board processes and documentation.'All the descriptions and views in the paragraph are based on observed events in the sector - they are not opinions formed in a vacuum.
    Thus, contrary to what you describe, the para did not give a
    clean chit on governance to MFIs. But you seem to have selectively read a small part of the para and distorted a meaning out of it which was never intended. Your view is that a material violation of the Companies Act by one director has not been reported in SOS. While names have not been taken, the para refers to "some of the large MFIs have been accused of mal-governance at material points of time to retain control..."The editorial policy of the report is not to engage in sensationalism and avoid exaggeration.It is disappointing that you should question the objectivity of the report based on a partial reading of one para in a 150 page report. I have admired you as an experienced commentator who raises critical issues about the sector and who accesses information from the field. When you choose to selectively use information and distort the substance and thereby
    potentially mislead the readers, your credibility might suffer; and the sector does not benefit.
    Best regards Srinivasan

  2. Dear Mr Srinivasan

    Thanks sir and your points are well taken and I have always admired your work and carried a great deal of respect for you and still do.

    I would rather not get into an extensive debate on the report by mail as the facts speak for themselves and I can make a detailed personal presentation to you all on my DETAILED analysis of the State of the Sector reports which outline some of the serious lacunae in the SoS reports which in my opinion do not cover important governance issues that came into the public domain last year prior to the SKS IPO - please refer to Prof Sriram's article in the EPW and my own paper on SKS which was circulated to you (Whether it was the interest free loan to the promoter MD to buy shares in the same MFI or other aspects, the SOS report fell short of doing its duty. Critical issues like that have not found serious treatment in the State of the Sector report. Governance is one of the most important aspects and it is my humble opinion that the report did not reflect sufficiently on such issues. Governance at MFIs never improved and I have enough evidence to show that and I will do so when we have the meeting!

    As I have said above, I have made an extensive documentation (line by line and word by word) on Governance and other issues covered in the State of the Sector reports as opposed those Governance issues concerning MFIs in the public domain last year and I am happy to present it to you and the Microfinance India summit advisory group after 26th Jan 2012. Do speak to Vipin and get back to me with a date and I am happy to make the presentation in the last week of Jan 2012 or anytime in February 2012.

    Sir, I have a right to have an opinion (based on facts that I have) and I am not making insinuations. I honestly felt that the report (Please note that I did not comment on the author but I did so on the report) was not objective and I also felt I had good reasons for that! I hold my views on the same!

    Thanks again and your feedback is much appreciated sir

    Have a good weekend!

    Warm Regards


  3. Dear Sir

    I just wanted to give one example from SoS 2010 with regard to objectivity aspects!

    In the foreword of SoS 2010 (2nd para), it is said and I quote:

    “A big story that rocked the sector was Professor Sriram’s paper on ‘Commercialization of Microfinance in India’, which highlighted issues of governance standards, ethics and transparency among large MFIs. This widely circulated paper, which was also published in the well-read Economic and Political Weekly, badly damaged the sector’s credibility. Ironically, it came out at a time when SKS (among the four institutions that were discussed in the paper) was preparing for the sector’s first Initial Public Offer (IPO).”

    This was the first mention of Prof Sriram’s SEMINAL papers of 2010

    The 2nd time that Prof Sriram’s name was mentioned, it was on page 30 in foot note number 9 and it was with another paper:

    ‘Impact of Kalanjiam Groups’, M.S. Sriram, IIM Ahmedabad, for Sir Ratan Tata Trust.

    The third time that Prof Sriram’s name was mentioned was in the Bibliography on page 137 -

    ‘Impact of Kalanjiam Groups’, M.S. Sriram, IIM-Ahmedabad, Sir Ratan Tata Trust.

    What I find very strange is that Prof Sriram’s seminal papers are mentioned in the foreword as one that rocked the sector and badly damaged its credibility.

    Yet, neither the papers nor the (Governance) and other critical issues mentioned therein do not find serious mention specifically inside the SoS 2010 report. Correct me please, if I am wrong on this!

    This is just one example of my assessment of the SoS’s objectivity. The same thing happened in the CGAP paper on SKS where the most important and defining papers of 2010 for Indian micro-finance – Prof Sriram’s working paper on Commercialisation and his EPW piece – do not even find a mention and some other paper (Forbes piece of 2010) of his does (just as in the main body of the SoS 2010 which lists his Kalangiam impact paper). I am sorry but that, in my opinion, is not being objective at all! Prof Sriram contribution to the issues that plagued the Indian Micro-Finance sector are SEMINAL and cannot and should not have been ignored. Any report that does not take cognizance of this SEMINAL body of work cannot be called as anything but unobjective!

    I have a line by line and word by word documentation/analysis of what the SoS report has said and what information was available in the public domain at the same time. I am happy to share that with you all in 2012 as offered earlier

    Thanks once again for your feedback!

    Warm regards