Where Angels Prey

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

Monday, November 28, 2011

Dissecting the mechanics of growth in Indian microfinance

Ramesh S Arunachalam

Let us stop crying over spilt milk but let us not forget what has happened in the past in the desire to achieve scale speedily. Going forward, it would be prudent for the Department of Non-Banking Supervision, RBI as well as proactive MFI boards (like Sahayata and SKS) and other stakeholders to look at growth trends closely

An earlier article in Moneylife (Lessons from the commercial microfinance model in India,) showed how the burgeoning growth of the commercial non-banking finance company (NBFC) model in Indian microfinance—during the period April 2008 to March 2010—perhaps led to the 2010 Andhra Pradesh microfinance crisis, which was the third in a series of crisis situations (the first being Krishna and second being Kolar) in the last six years.

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Wednesday, November 23, 2011

Life after Vikram Akula at SKS Microfinance: Some unanswered questions?

Ramesh S Arunachalam
It seems unlikely that Vikram Akula’s exit will transform SKS Microfinance into a better governed and managed microfinance company. Only time can tell if and whether the exit of Vikram Akula would bring better times to SKS micro-finance, its investors and clients

The board of SKS Microfinance is said to be meeting in Mumbai today and it has been widely speculated that Vikram Akula is all said to resign from SKS Microfinance as its executive chairman. While the reasons for this are not exactly known, it has been suggested that the poor performance of the company during the last quarter has brought increased pressure on Mr Akula to resign.

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Monday, November 21, 2011

Lessons from the commercial micro-finance model in India

Ramesh S Arunachalam

Fresh perspectives and radical (systemic) changes are required for developing an enabling micro-finance regulatory and supervisory mechanism that can really work on the ground for the benefit of large numbers of low income people

reported last week that charges of serious misreporting and mismanagement have again surfaced in the public domain with regard to Indian micro-finance. Specifically, the article reported that Sahayata Microfinance Pvt Ltd, which was the darling of so many investors, lenders and stakeholders had apparently gone astray - with its now suspended CEO and senior management supposedly involved in serious misreporting and mismanagement. (http://www.moneylife.in/article/award-winning-sahayata-microfinance-is-the-latest-to-go-astray/21549.html)

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Friday, November 18, 2011

Award winning Sahayata Microfinance is the latest to go astray

Ramesh S Arunachalam

Charges of serious misreporting and mismanagement again surfaced in the Indian micro-finance. The question is how could a company like Sahayata Microfinance, which was darling of so many investors, lenders and stakeholders go astray

I came across a very interesting news item in a newspaper today:

“Sahayata Microfinance Pvt Ltd has suspended the brass, including its chief executive, on charges of mismanagement. The Rajasthan-based microfinance company has also stopped fresh lending temporarily, to set its house in order. Following the suspension of management and poor performance, rating agency CARE downgraded its non-convertible debentures of Rs 19.5 crore from CARE BB+ to CARE B-. In September some board members pointed out prima facie evidence of the management’s misrepresentation of company performance. The board has ordered a detailed portfolio audit. The investors have placed an interim -management to control operations, to ensure the business continues uninterrupted. The company will resume loan disbursement from December. The board questioned chief executive, chief financial officer and other senior managers on charges of serious misreporting and mismanagement. ... While chief executive was suspended with immediate effect, the CFO and head of operations were stripped of their duties immediately. They were subsequently suspended.” (Business Standard, November 18, 2011,)

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Thursday, November 17, 2011

Who Should Regulate Indian Micro-Finance?

Ramesh S Arunachalam

Lack of a proper regulatory framework, including lack of proper supervision had played an important role in the disorderly growth of the NBFC MFIs

A recent news item stated that, “In its report ‘Trend and Progress of Banking in India 2010-2011’, The Reserve Bank of India (RBI) states that if State Governments start enacting their own legislations to regulate microfinance institutions (MFIs) including the ones regulated by the Reserve Bank, there will be plurality of regulation leaving scope for regulatory arbitrage. The responsibility for regulating NBFCs has been given to the Reserve Bank, thus, empowering it to regulate the NBFC- MFIs. If other States also come out with legislation similar to the Andhra Pradesh Government, it will raise concerns not only about multiple regulations but also about client protection, as borrowers would then be subject to different regulations. If there are separate regulations governing NBFC-MFIs in individual states, the task of regulation by the Reserve Bank of MFIs operating in more than one State will become even more difficult. This may also impact the business of MFIs, which are operational in more than one State, it says.” (RBI against State Govt regulating microfinance institutions,)

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Friday, November 11, 2011

Complaints of low-income MFI clients must be resolved at the earliest

Ramesh S Arunachalam
If complaints of low-income MFI clients are resolved at the earliest, it would help avoid another crisis, as was seen in 2010

During the peak of the crisis, I remember Suresh Gurumani, the then CEO of SKS Micro-Finance, responded to my post in the micro-finance practice a Yahoo discussion group by saying that one of the most important tasks that he had accomplished at SKS (when has was there), was the establishment of toll-free number where low-income consumers could file their complaints. While I am not sure how the initiative has worked on the ground, it is imperative to follow-up on the idea for several reasons given below and it would be great if the proposed micro-finance bill explicitly brings in the following aspects—concerning complaints and consumer protection mechanisms—as part of the overall regulatory and operational architecture for micro-finance in India.

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Tuesday, November 8, 2011

Will the Micro-finance Bill address real ground level problems?

Ramesh S Arunachalam

The micro-finance bill must provide a clear pathway to preventing occurrence of the various problems so that crisis situations can be avoided in the future 

It is great news that finally the draft micro-finance bill will be introduced in the winter session of Parliament. While undoubtedly, the regulatory architecture for Indian micro-finance needs urgent attention, the efforts to have some framework should not result in the adoption of a regulatory mechanism that does not serve the real problems at hand. That is something that the various stakeholders must ascertain even as they evaluate the draft micro-finance bill so that appropriate features are introduced into it.

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Tuesday, November 1, 2011

Responsible Indian microfinance in India: Still a pipedream year after crisis

Ramesh S Arunachalam

The self-help group & bank- linkage model has been touted as the panacea for solving the current crisis facing Indian microfinance. But this linkage model faces a number of issues that need urgent attention

The Indian microfinance crisis continues and there seems no sign of real revival on the ground. Of late, we have been hearing that a savings-led model may have prevented the recent (ongoing?) Indian microfinance crisis! I am not sure that a mere savings-led model would have prevented the crisis and here is why.

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