Microfinance institutions should be permitted to transform into banks as it will help them improve services and reduce costs

Ramesh S Arunachalam

Before allowing MFIs to become banks, the Reserve Bank of India must ensure that these institutions are equipped with adequate due diligence and sound KYC policies and procedures

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How and why did microfinance agents become a part of the Indian microfinance business?

Ramesh S Arunachalam

It is important to understand that MFIs co-opted local leaders as agents in their desire to grow rapidly, to cope with the costs of servicing the last mile and maximize profits

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Can the marriage of MFIs with banks be a sustainable option out of the microfinance crisis?

Ramesh S Arunachalam

There is a feeling among bankers that the acquisition of MFIs could strengthen the functioning of these institutions and enable the much-needed funds infusion. But any such takeover would first require an assessment of the portfolio of these MFIs

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Never waste a crisis: Some suggested incentives for the proposed microfinance bill

Ramesh S Arunachalam

Linking the implementation of norms and safeguards to availability of priority sector lending can minimise the risk of failure while improving the protection of the interests of clients and investors

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Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill

Ramesh S Arunachalam

While macroeconomic changes are essential to iron out the chinks inherent in the industry, a close look is needed to look at the ground realities and the current agent-led decentralised microfinance model

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Independent India@65: Inclusive growth for Bharat remains an elusive dream

Ramesh S Arunachalam

Achieving inclusive growth continues to be the biggest challenge for our country, as it concerns integrating 600 million people living in rural India and several million living in urban slums, into the mainstream economy, in a fair manner

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Who should regulate the microfinance sector?

Ramesh S Arunachalam

There are far too many serious issues that require attention so that they are not repeated again and the Reserve Bank of India or some central institutions cannot undertake this task as they do not have the resources or the local presence


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A number of short-term issues need to be tackled expeditiously for resolving the Indian microfinance crisis

Ramesh S Arunachalam

The time to act decisively has come now. The RBI, Ministry of Finance, the Andhra Pradesh government, MFIs and other stakeholders must get into mission mode and set a number of checks and balances in place to overcome the huge unfolding crisis which is likely to completely distort or destroy the low income rural economy

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What went wrong with Indian microfinance?

Ramesh S Arunachalam

For starters, here are some questions for SIDBI’s board and senior management so that they can initiate the task of learning from their past experience

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SIDBI must rework its microfinance strategy

Ramesh S Arunachalam

Merely increasing funding for microfinance, without learning from past mistakes, will not solve the microfinance crisis. As one of the biggest lenders to the microfinance sector, it is up to SIDBI to develop necessary safeguards to ensure that the industry it helped create, does not collapse under the weight of its sometimes over-enthusiastic support for MFIs

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Crucial to have the right members on the Microfinance Development Council

Ramesh S Arunachalam

The proposed Council to advise the government on the microfinance business should have proper representation from among all the stakeholders who will be alert to the task, while those who have specific business interests should be avoided

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Four ways to improve the regulation of compensation at MFIs

Ramesh S Arunachalam

The compensation of senior management must be worked out by an independent remuneration committee constituted of knowledgeable members, and this process must be seen to be transparent and fair

As I wrote in the article on the Moneylife website yesterday, the regulation of compensation at microfinance institutions (MFIs) needs to be improved. In this report, I have outlined four strategies that the stakeholders in the Indian microfinance industry (regulators, bankers, investors, credit raters and others, like the associations of MFIs) should seek to achieve in our own little ways. These are practical things to try and implement on the ground, to ensure that processes in the governance of compensation at MFIs become transparent and are indeed perceived to be fair. (Read, "Regulating the compensation awarded to bosses of MFIs".)

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Governance of compensation awarded to bosses of MFIs

Ramesh S Arunachalam

The senior management of these institutions that claim to be serving the poor, receive unusually high payments which is not determined through an explicit process

Compensation is indeed a very sensitive and critical aspect of governance in MFIs and it has serious implications for the detailed regulatory guidelines being prepared by the Reserve Bank of India (RBI) and the microfinance bill being drafted by the Union Ministry of Finance (MoF).

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