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.
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.