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How Organizations Fail Because of Malpractices, A story of Asasah Microfinance Fall

How Organizations Fail Because of Malpractices, A story of Asasah Microfinance Fall

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Published by Farhat Abbas Shah
The article reveals that how the corrupt managements make lives changing programs a failure only for their personal gains by creating nexuses in the markets.
The article reveals that how the corrupt managements make lives changing programs a failure only for their personal gains by creating nexuses in the markets.

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Published by: Farhat Abbas Shah on Apr 09, 2012
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01/11/2014

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How Organizations fail because of malpractices
An MFI (Asasah) failure story to learn lessonsBy Farhat Abbas Shah
Problem Statement:
Corrupt and incapable managements are the main cause of making the microfinance a failure
Introduction
The microfinance industry’s growth over the past forty years is best described as impressive. In arelatively short amount of time, non-profit institutions founded by non-bankers have transformed intofinancial intermediaries, including full-fledged banks. Funding has shifted from donor-dependency to arich mix of private and public, international and local funders – some of whom created for the solepurpose of funding microfinance! But growth spurts beget growing pains, and one of these growingpains manifests in failed institutions. To be clear, the phrase “failed institution” does not solely meaninstitutions which collapsed and ceased to exist, but also includes institutions which faced a crisis soserious its net worth turned negative and the institution had to be intervened and transformed in orderto survive. Just as it is important to celebrate the triumphs of the industry, we must analyze theshortcomings. We can only learn from the mistakes of others by examining and understanding theconditions which lend to error, and ultimately failure. Microfinance institutions may fail for a variety of reasons, but the investigative paper “Failures in Microfinance: Lessons Learned” by Beatriz Marulanda,and others (1) in Latin America, sought to identify the most common causes of failure. The investigationunearthed uncontrolled growth and loss of institutional focus, flaws in credit methodology, andsystematic fraud as the main causes of institutional failure
.
On the other hand, failures do not alwaysarise from exponential growth or flaws in credit methods. We must recognize that systematic fraud canand has occurred in some institutions and that such fraud will lead to an institution’s dissolution.Systematic fraud does not pertain to the handful of cashiers who may pocket money, or the loan officerwho creates a ghost borrower. That type of fraud, while significant and requiring control, will not bringdown an institution. Systematic fraud refers to fraud at the executive management and board levels.For example, imagine an NGO in which the CEO and Chairman of the Board are one in the same. Thisduplication of roles in a single person weakens controls in the NGO for obvious reasons, such asweakening the board’s power to pursue the interests of the institution rather than the CEO’s reputationor family members’ businesses. This type of fraud does not necessarily have to be sinister in nature.Too easily can a person justify and rationalize why their interests align perfectly with the institution’s,and their intentions may be pure, but ultimately the reality of their choices may not be best for theinstitution and the MFI suffers for it. Of course, more criminal fraud can occur, such as embezzlement.
 
However, even criminal fraud can be identified, contained and corrected if roles are not duplicated.Thus, it is important to separate management and governance roles in order to mitigatemismanagement of the institution, regardless of the intention of the individual in question.
 
By Alex Silva and Anais Concepcion, Microfinance Focus, January 7, 2012)
 
Background
It is not only any simple observation or study but a story of first hand experience. In beginning the CEOof Asasah engaged me to produce the documentaries, stories , shoot events as I was the owner of amedia company and doing this sort of business. However after a very short time she offered me to joinAsasah if I have a passion to work for poor community. So I accepted the offer with a soft warning thatif you are doing any thing wrong, then kindly don’t get me in your business because I am a mediaperson. We are open and transparent and do not afraid of anybody. I joined Asasah on 1rst Sept 2007 tillthe 1rst of November 2009. In this period of my service I tried at my level best to serve my first MFinstitution with all my personal, social and journalistic capabilities but I found all in vain because therewas nothing except a greed, lust and ultimate cruelty from the family. Particularly I find the CEO even inhuman with her daily behavior for the all staff and clients, particularly with female staff. She was verysharp to oblige the influential people in managing and using and exploiting them by bribing them withcostly gifts and money. At the same time she was extremely nonprofessional to deal the organizationalmatters. High turnover of staff and the incidents of suicides can be investigated in this perspective. TheJaffery Family misuses the donors funds, Make their own bank balances, utilizes staff’s frauds in theirfavor by hiding the actual recollection of stolen money. Mr. Michael McGrath the former Chairman of the Board of Asasah left the organization after observing a few nonprofessional events within Asasah.Although he did not mention these events and the reason, however he was not happy with themanagement.
A few other Factors
When I, Rafay Mahmood and a few others resigned from Asasah Microfinance Institute of Pakistan in2009 with the claim that, the management has only six months to declare emergency and make a soundstrategy to stop this fall of second largest MFI of Pakistan, nobody was ready to listen us. We informedPakistan Poverty Alleviation Fund by a mail about our resignation. They rushed to the organization,started audits and evaluation but as usual they came to the MFI as auditors but went as “consultants”. Iwas eye witness, when PPAF came to know that Asasah’s CEO Ms. Tabinda Alkenz Jaffery investedfunding in her personal business of mobile oil with the cooperation of her brother Mr. Imran Jaffrey , anauditor came from PPAF and stop them to do this mal practice but they made neither any charge norstop funding to them. It was also in the knowledge of PPAF that the staff of Asasah is at a high alertbecause of un satisfaction and due to a constant inhuman psychological pressure from the CEO and herfamily members , who directly and indirectly by both ways were, and even involved in theorganization’s in and out. As Ms. Zarreen the GM Operation ( mentioned as manager finance at MIX ),brother Mr. Ammar Adam Jaffry (ex head of HR Asasah), who worked as the head of HR ( without anysound experience and qualification), now working as a hidden supplier , brother Mr. Imran Jaffery
 
some times played his role as a consultant, some times as a legal advisor and lately worked as theresponsible of Islamic Microfinance window and participated in SBP focus group meetings with theposition. The management always sharply manipulated organizational documents and practiced tochange them off and on by the moment they required to hide the facts and figures, for example all thefamily made money by paying fictitious advances to the staff through cheques, made a completeprocess and got back that money for their personnel use. When the auditors asked them to refund thatmoney, they have released that advances to the staff against the increments on the advice of the boardof directors, the management replied.Currently the new PPAF CEO Qazi Azmat Isa has stopped their funds and made a few steps to recoverthe delivered funds but they( PPAF) could not analyze the accounts of Asasah, according to differentdonors funds. Because the Asasah overlaps clients of PPAF and Kiva and others because of inembezzlement of these funds for their personnel benefits.More than two staff members of Asasah committed suicide one gave in under a heavy psychologicalpressure. The Asasah management has registered a case on a female staff member on resigning fromthe job after her marriage. The area ex manager Ms. Shumaila can be approached to know a number of facts and evidences.The story of termination of an honest female Internal Auditor is also a case study that reflects the trueface of the CEO Ms. Tabinda’s women empowerment claims. Ms. Maryam Baloch can be interviewed inthis regard.Now Asasah have not more than five thousand clients reportedly but showing different numbers ondeferent accounts.Kiva is also showing an out dated information about Asasah as a Kiva’s partner, and KIVA stillcontinues funding to Asasah without knowing the threats and risks. Kiva can lose a big money of itsdonors and trust also. KIVA is still working with Asasah without having the updated information aboutthe current status of the organization.Interestingly the Institutional Strengthening Fund( provided by DIFID ) Committee of SBP has releasedgrants to Asasah for conducting the pilot of branchless banking as an organization having capacity togrow as a Microfinance Bank from an MFI, while Asasah is continuously decreasing its clients. TheCommittee couldn’t analyze and evaluate the institution, and remained unaware of its track. The facilityprovided by DIFID is being wasted through an inefficient committee and these funds could not createany noticeable impact.
The following Weaknesses were observed even after 6years of Asasah,s history but the managementwas just focusing on making money.
1.
 
Weak Internal Controls2.
 
Weak and scattered organization structure3.
 
Pooling of interest4.
 
Incompetent Staff 

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