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Sanchetna Volume 4,

Sanchetna Volume 4,

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Published by siddhart.misra3428

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Published by: siddhart.misra3428 on Apr 01, 2009
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Samridhi has entered into a strategic partnership with Trust MicroFin Network (TMN). TMN is a not-for-profit Trust that provides financial and other support services to its partners in the field of Microfi-nance and livelihood services. TMN currently has 22 network partners in the in UP, Bihar, Jharkhand,Uttarakhand and Rajasthan. As a strategic partner, TMN will provide Samridhi with bulk creditthrough debts over the next few months.
Samridhi’s Managing Partner, Lokesh Kumar Singh has been shortlisted in thefirst list of “The Power of Ideas”, an initiative by The Economic Times for bud-
ding entrepreneurs. In the first phase, individuals from across the country,who had a business idea, submitted it in an appropriate Business Summaryformat. The shortlisted candidates will now be called for Group Mentoringsessions and will be prepared for an Elevator Pitch interview. The candidateswill be mentored by successful entrepreneurs, investors and patrons of ThePower of Ideas at select cities.
The select few “Ideas” will be polished and nurtured with personalized guidance from senior mentors before
being submitted to the largest group of investors for funding.
Trust MicroFin enters intoStrategic partnership withSamridhi
1 APRIL , 2009VOLUME 1, ISSUE 1V
The close of financial year 2009 saw Samridhi reach the Rs. 4Million in disbursement. By adding 120 new members to its fold
in March has taken Samridhi’s membership count to over 500.
The JLG model of Micro financing is proving to be a compellingvalue proposition for the clientele which is otherwise not af-fected by the economic slowdown. With several key innovationsin its field processes and a well thought out growth plan thecompany is going from strength to strength.
 
Samridhi crosses the Rs. 4 million disbursement mark The Power of Ideas
 
PAGE 2
Origin of Indian Microfinance Industry:
Corporate governance in Indian Microfinance
Corporate governance has never been India Inc’s forte. The recent Satyam fiasco is the
latest testimony to the plight of Indian businesses. The causes for such fiascos can besummarised in the points mentioned below.
Ownership structure
 
Role of independent directors
 
Unclear pricing policies
 
Audit reports
Salary Structure
 
The Microfinance sector is also not unscathed by the above mentioned problems even
though it’s still a sunrise sector. The sector so far has been somewhat different from itspeers world over in terms of rate of growth. India’s demography has helped the sector to
a large extent. Though, Indian Microfinance was only replicating what was already verymuch prevalent in Bangladesh, but in terms of rate of growth it has left its mentor farbehind. The situation had come to a stage where 20
 –
25% CAGR which can be very re-spectable and elusive rate of growth in other industry was meted out with ridicule in In-dian Microfinance industry which had clocked rate of growth anywhere close to 70-100%CAGR depending on which figure you takes for your consideration.We can trace the reason for the present status of corporate governance partly in the thisfast pace at which the industry has been growing and at which every player is expectedto grow in order to stay in the race.Microfinance as being practiced today was not always intended to be in this way when itstarted. Initially microfinance was not the exclusive activity that the organisations wereperforming. It all started with failure of government run poverty alleviation programswhich motivated social entrepreneurs to look outside India when they came across thepowerful Grameen Bank model and which was not dependent on government infrastruc-ture.Typically these organisations were led by somebody who had a strong visible social com-mitment and they mostly wanted to work around the areas which they either have
known through their upbringing or through their professional experiences. That’s how the
entire microfinance sector started to grow.Suddenly private banks woke up to the potential of this sector and started lending tothese institutions. With the credits easily available the organisations started expandingtheir microfinance initiatives and realised that their other activities had become quitenegligible in comparison to their microfinance initiatives. In the process financial institu-tions realised that these organisations were very highly leveraged and they started be-coming anxious about the risk associated with such lending. At the same time regulatoryauthorities realized that the NGOs which otherwise are supposed to be philanthropic innature were making huge profits and regulatory authorities found it increasingly difficultto reconcile to these two contradictory features of microfinance organisations.
"The path to our destination is not always astraight one. We go downthe wrong road, we getlost, we turn back. Maybeit doesn't matter whichroad we embark on. Maybe what matters isthat we embark . "
 – 
 Barbara Hall
 
PAGE 3VOLUME 1, ISSUE 1V
These two factors started pushing the Indian microfinance organisations towards getting formalized and that’s
when the trend of getting converted into NBFC started.
Corporate Governance and Transparency:
Corporate governance is part of larger framework of transparency. Transparency with whom? Obvious answeris all the stakeholders. Most poignant part of the whole debate is while discussing corporate governance the
“ultimate stakeholders”, the clients are never discussed. The whole issue of transparency towards the clients is
swept under the carpet so much so that nobody discusses it other than paying lip service.As on August 2008, CRISIL had graded about 100 MFIs, which included most of the large and prominent players.Only about 46% of MFIs qualify for a grade of 'mfR4' or higher, and no MFI meets the top grade of 'mfR1'.Themedian grade of 'mfR4' reflects a satisfactory level of management quality, financial performance, and funding sta-bility. Distribution is not biased by the age of an institution. Several relatively young MFIs are in the upper
Specific issues concerning the corporate governance and transparency can be summarised as follows.1.
Ownership Structure
-
Most of the NBFC’s are transformed from NGOs to their present structure which
has led to ownership structure and control not having correlation. The original promoter enjoys almostunchecked power over the daily functioning of the organisation till the organisation reaches a certainsize disproportionate to their holdings.2.
Role of Independent Directors:
Recent cases of corporate misgovernance have given rise to the doubtsthat the independent directors do not have any incentive to speak against happenings in the organisa-
tion’s functioning. Similar scenario plays out in MFIs especially in case of non
-profit companies as theindependent directors know very little about the business of microfinance and they feel obliged to keepquiet on issues which are of little concern to them.3.
Pricing of products:
Indian microfinance though has not been very innovative in the field of products butwhen it comes to camouflaging the high pricing of loans there would be fewer better innovators thenIndian Microfinance Industry. There has been all different kind of hidden charges to make the highpriced loans palatable to clients.
4. Inconclusive Audits:
Another Issue which plagues the entire sector is that audit reports are not stan-dardised and creative accounting seems to be at play here. Major concern here is that it goes almost un-noticed by the auditors who have no domain knowledge of this field.

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