Where Angels Prey

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

Thursday, June 21, 2012

Bank business correspondent models need to have controls to safeguard clients’ interests

Ramesh S Arunachalam

Client-level controls assumes great importance in the common BC model, as without these banks and BCs could lose control of their operations and be exposed to significant costs and risks

If there was one major learning (at least for me) from the 2010 Andhra Pradesh (AP) and Indian microfinance crisis, it is the fact that strong controls and procedures need to be place (at the grass-roots) with regard to (end-user) clients. Since microfinance institutions (MFIs) did not have good client-level controls, the last mile operations were easily manipulated and the microfinance crisis occurred. Many of the problems-ghost clients and related frauds, multiple lending, over indebtedness, lack of adherence to KYC norms, proliferation of broker agents, burgeoning growth-that were evident (during the 2010 crisis) can be directly attributed to this lack of appropriate client level controls in MFI operations.

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