Where Angels Prey

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

Friday, December 16, 2011

Lessons from the Indian microfinance crisis, an open letter to Andrew Mitchell

Ramesh S Arunachalam

Two crucial aspects in microfinance—client origination/targeting and loan appraisal—have been neglected in favour of unprecedented growth (caused by a desire to fully commercialise microfinance and rapidly enhance access/outreach of such services) and this has resulted in the present crisis

An open letter to the right honourable Andrew Mitchell, UK International Development Secretary, on lessons from the Indian microfinance crisis

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Lessons from the Indian microfinance crisis, an open letter to Andrew Mitchell

December 16, 2011 


Ramesh S Arunachalam

Two crucial aspects in microfinance—client origination/targeting and loan appraisal—have been neglected in favour of unprecedented growth (caused by a desire to fully commercialise microfinance and rapidly enhance access/outreach of such services) and this has resulted in the present crisis

An open letter to the right honourable Andrew Mitchell, UK International Development Secretary, on lessons from the Indian microfinance crisis

Respected Sir,

Good afternoon! I am delighted that The UK Department for International Development (DFID) is launching SAMRIDHI (a programme promoting microfinance and impact investment in India)  in partnership with SIDBI in your esteemed presence (Sir) at 6pm today, the 16th December (Friday) at the British Council Division, Kasturba Gandhi Marg, New Delhi. Much as I wanted to attend the same, I am unable to do so and hence, this open letter Sir for your kind consideration and necessary action.

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Thursday, December 15, 2011

Subjectivity and inconsistencies in microfinance code of conduct assessments

Ramesh S Arunachalam

While there are many contradictions, inconsistencies and subjective interpretations in the CoC assessments which seem to draw the attention away from the real issues, we hope the sponsors and developers of the SIDBI-World Bank COCA tool recognize the fact that it far from being a reliable and valid psychometric measure of code of conduct assessments

While previous articles looked at the award of free points in the code of conduct assessments (COCA) reports and the peculiar findings arising therein, this article looks at issues of subjectivity and inconsistency in CoC assessments with tangible examples.

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The award of free points in microfinance code of conduct assessments

Ramesh S Arunachalam

It is meaningless that the COCA tool rewards mere existence of policy and/or management statements of policy implementation when it should be really looking at solid evidence in support of implementation of the voluntary codes of conduct on the ground

An earlier Moneylife article (Have sophisticated thermometers ever reduced the temperature?) raised the issue of how the fastest growing NBFC-MFIs received higher (better) code of conduct assessments (COCA) scores in relation to the lower growth and not-for-profit counterparts. This peculiar finding has necessitated a close analysis of the eight SIDBI-World Bank sponsored code of conduct assessments found in the public domain (http://www.sidbi.com/micro/codeofconduct.html)

Wednesday, December 14, 2011

How to ensure success of the Great Indian Microfinance credit bureau?

Ramesh S Arunachalam

For better credit reporting and the credit bureau to work, ‘the boards of MFIs’ must be able to re-orient their organizational vision to one of responsible finance—this means they will have to move away from their desire for ‘super fast’ unnatural growth to balanced natural growth and normal profits

Okay, the preceding article summarized issues concerning the Microfinance credit bureau in India. If that is the situation, what then can perhaps make credit reporting better and also a credit bureau to really work in terms of checking multiple, over and ghost lending? In my opinion, there are several things that need to happen and I hope that the RBI, IFC, Omidyar and the microfinance industry work together in ensuring that these happen on the ground…

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The Great India Microfinance Credit Bureau: Questions that beg an answer…

Ramesh S Arunachalam


The establishment and use of a credit bureau in an emerging market like India a very challenging task. If serious efforts are made, it could take several years from initial discussions to regular use of the credit bureau—one that produces reliable and valid credit information reportsin a transparent manner and not just some reports

It indeed very nice to see an increasing emphasis placed by many stakeholders on the use of credit bureaus (and better credit reporting) in microfinance. One such stakeholder is the International Finance Corporation (IFC), “which is holding a ‘South Asia Regional Workshop on Microfinance Credit Reporting’ in New Delhi on 14 December 2011. IFC and co-sponsors Omidyar Network launched phase one of MFI Credit Bureau project in India in June 2009 working closely with MFIN and the existing credit bureaus, as a result of which about 45 MFIs have started reporting to a credit bureau and 55 million client records have beenuploaded as 2011 draws to a close.” (http://www.microfinancefocus.com/ifc-expand-microfinance-credit-bureaus-coverage-india)



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Monday, December 12, 2011

Have sophisticated thermometers ever reduced the temperature?

Ramesh S Arunachalam

The hype of the moment in microfinance is undoubtedly to subscribe to all kinds of code of conducts, client protection principles, social performance and other self-regulating initiatives. To set the record straight, had all the stakeholders really subscribed to these in the first place, there would have not been such a crisis in Indian microfinance

The ongoing Microfinance India Summit has a special session titled, ‘Client protection and Code of Conduct: From principles to practice and compliance’. The session is to be held on 13 December 2011 (1.30 - 3.00 p.m - Breakout Sessions). As the session introducer notes:

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What is said at conferences is very different from what is implemented in practice

December 12, 2011 07:13 AM
 
Ramesh S Arunachalam

It is very easy to talk high flying concepts at conferences and also publicly claim that the same is being applied in practice. In reality, however, much of the intended strategies do not get implemented in microfinance and that is something that conference organizers, industry associations, regulators and stakeholders must take notice

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Sunday, December 11, 2011

The Micro-Finance India Summit 2011

Ramesh S Arunachalam

Social performance is the ‘in’ thing in micro-finance and an entire session is devoted at the Micro-Finance India summit towards the same and a special social performance report is also to be released at the Summit. The Micro-Finance India Summit session is titled, “Beyond the Buzz, Embedding Social Performance within Practiceand the emphasis of the session is described  below

Session Outline: Beyond the Buzz, Embedding Social Performance within Practice

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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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Friday, December 9, 2011

Tackling informal collateral and collateral substitutes in Indian microfinance

Ramesh S Arunachalam


The RBI must ensure that informal collateral and/or abusive collateral substitutes do not contaminate microfinance in the future. It should also seriously think on incentives/disincentives that can be set up to eliminate use of informal collateral and/or abusive collateral substitutes, where they exist

Recently the Reserve Bank of India (RBI) issued a circular defining NBFC–MFIs. According to the circular, an NBFC-MFI is defined as follows:



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Thursday, December 8, 2011

Priority sector lending to MFIs—need for adequate supervision

Ramesh S Arunachalam


If the concerned RBI departments could not monitor five of the top 13 NBFC-MFIs that were supposed systemically (very) important, then, how can they be expected to set up supervisory mechanisms for several hundred MFIs as per the proposed Microfinance bill?

If equity was in some ways responsible for the burgeoning growth of Indian microfinance institutions (MFIs), the (huge) amount of (priority sector) debt leveraged by these 13 NBFC-MFIs (in top 14 MFIs) and other NBFC MFIs is another issue here.

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Saturday, December 3, 2011

The special category of NBFC MFIs: Lessons for the Department of Non-Bank Supervision, RBI

Ramesh S Arunachalam
Without question, the present scenario, in the wake of Friday’s circular, places a huge burden of responsibility on the Department of Non-Bank Supervision and the RBI and for the sake of real financial inclusion, we sincerely hope that the department lives up to its roles and responsibilities with diligence, aplomb and efficiency

On Friday (2 December 2011), the Reserve Bank of India (RBI) created a special category of non-banking finance companies (NBFCs)—NBFC–MFI. The RBI must be congratulated for creating this new category as it explicitly recognizes microfinance as an important facet of the larger financial sector.

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