Money & Banking
Subjectivity and inconsistencies in microfinance code of conduct assessments

While there are many contradictions, inconsistencies and subjective interpretations in the CoC assessments which seem to draw the attention away from the real issues, we hope the sponsors and developers of the SIDBI-World Bank COCA tool recognize the fact that it far from being a reliable and valid psychometric measure of code of conduct assessments

While previous articles looked at the award of free points in the code of conduct assessments (COCA) reports and the peculiar findings arising therein, this article looks at issues of subjectivity and inconsistency in CoC assessments with tangible examples.

1.    It has been observed that Bandhan has only recently incorporated a cash flow analysis of clients’ households in its loan forms. Rightfully Bandhan did not receive a high score on O (Observance).

The case of Equitas is contrary to this. One month before the COC assessment took place, Equitas is said to have rigorously changed its policies (i.e., one month after the AP crisis started). 

The M2i COCA report concludes that "the management now feels that due to these measures it has been able to overcome the problems related to unauthorised agents even in the areas where the problem was quite acute. In M2i's opinion, despite all sincere efforts, some of these agents may still be in existence" (

 This COCA judgement appears to be based on soft factors: the assessment is relying on the interpretation of the management and the management 'feels' that is has been able to overcome the problems. Even though agents exist in areas where Equitas operates (MFIN-NCAER study: Here's the proof that microfinance agents are thriving in Tamil Nadu) and problems due to agents have not been not been ruled out by M2i COCA report itself, Equitas still receives a high score (7.6 out of 9) on O (observance) as shown in Table above Thus, we have the cases of Bandhan and Equitas, both of which had changed their policies (Bandhan on Loan Appriasal and Equitas on CoT) after the crisis and stated that they were implementing the new policies now. On one hand, Bandhan was rightfully given a low score whereas Equitas got a high score-even though (as per the COCA reports) both the MFIs had not fully overcome the observed problems. There seems to be a great deal of subjectivity and inconsistency here with regard to the COCA tool

2. With regard to pricing, I realise that transparency in pricing is the major concern in this COCA tool. Given so, I find it contradicting that SKDRDP, which charges by far the lowest interest rates, gets the lowest score because "it accounts for and communicates interest on a flat rate basis". (  This is the main reason for providing exceptionally low grading whereas the above report states that SKDRDP's "Annualised Percentage Rate is among the lowest for the MFIs in India." This needs to be noted carefully. 

The implication of this is that MFIs that mention their interest rates on a declining balance but charge higher (APR) rates of interest are rewarded with higher (and better) scores. And MFIs who state their interest rates on a flat basis but charge lower (APR) rates are penalised with lower scores. I am not sure that this is fair at all!

That transparency on pricing is not always understood by the clients becomes evident from the Equitas COCA report. Equitas is known for its transparency in pricing and it communicates these on a declining balance basis. The Equitas COCA report however states that "the level of awareness of the clients about the effective interest rates and method of application was found to be low." ( This being the case, what then is the great benefit from communicating interest rates to clients on a declining basis?

Without question, clients are surely better off with lower (annualised percentage) interest rates (stated on a flat basis) as compared to higher rates of interest presented to them on a declining balance.

3. Bandhan received a high score on Staff Conduct (97%) (please look at Section 1: Scores and facts in the report page no 2 given at

The COCA report says: "None of the clients reported any misconduct by the staff. However, the internal audits were not found covering staff conduct issues adequately and explicitly."  (Page no 13)

The key question here is how can M2i come to an overall score of 97% on staff conduct when internal audits do not cover staff conduct? Moreover, M2i allotted the maximum score of 11 points out of 11 points on Observance (please look at Annex 1, page no 15 in the above report) even though a serious concern (internal audits were not found covering staff conduct issues adequately and explicitly) was observed at Bandhan. When staff conduct is not under the purview of the internal audit team, what is the guarantee that staff conduct is indeed good and as per policy? And given such a situation, how can Bandhan be given the maximum score for observance?

4. Also related to staff conduct is the case of Equitas. Equitas received a 100% score (35 points) on staff conduct (please look at Section 1: Scores and facts in the report page no 2 given at It may be good to realise that staff conduct is the indicator that accounts for about 28% of the total COCA score (please look at the above report, page no 22) and it is a very important indicator.

The report says that in the past,

"Equitas has faced problems pertaining to involvement of unauthorised agents in the client origination process, particularly in some of the branches of Chennai, primarily on account of high sales targets of the SOs (sales officers) and weaker controls". (page no 7)

Thus the SOs were dealing with the clients through the unauthorised agents. So maybe the relationship of the SOs with the agents may have been good, but with whom did the ultimate clients deal and how good was that relationship?

Further, the report says that Equitas has done away with targets and related incentives for enrolment of new clients from "November 2010 onwards in order to reduce the likelihood of the SOs getting involved with the unauthorised agents. In M2i's opinion, despite all sincere efforts, some of these agents may still be in existence." (page no 7) 

Given that, in M2i's own assessment, agents may still be (and perhaps are) in existence, surely, it cannot be expected that they (these agents) will follow any policies on staff conduct. So how can M2i justify a 100% score for Equitas on this aspect? It seems that not-so-good practices here are rewarded with the maximum score!

5. Ujjivan has experienced problems with unauthorised agents and the COCA report says that:

 "there are instances of presence of unauthorised agents and influential group leaders as has been pointed out in many Internal Audit reports of Ujjivan. The assessment team also observed many instances where the same center leader has been the leader for many years and that the same person is leader of more than one MFI center/group." (Page no 8) (

How is it possible that Ujjivan receives a 92% score on client origination (please look at Section 1: Scores and facts in the above report, page no 2) while these serious concerns are found to be in existence? It is also inconsistent that these serious problems have not been addressed as an area of improvement. M2i considers enhancing client awareness of the declining balance interest rates and improving the dissemination of grievance redressal mechanisms to be more important for Ujjivan.

6. Last but not the least, SKDRDP received a low score on client origination amongst others because "the organization does not have a policy on avoidance of unauthorized agents." (

The same report also says that "at present, SKDRDP mostly operates in areas where other MFIs are not operating. In the current assessment no evidence could be found to suggest that unauthorized agents are affecting the operations of the organization in any significant manner." (Page no 7)

In other assessments like those of Basix, Equitas and Ujjivan, the scores for client origination were high because the MFIs have a policy not to deal with unauthorised agents. However in practice, and especially in the recent past, these three NBFC-MFIs have been actively using agents. The COCA reports also do not rule out the use of agents by some of the MFIs (at the time of the assessments). That being the case, why is their score for Client Origination and Targeting (COT) higher than SKDRDP, where no serious evidence with regard to use of agents was found by the M2i team. 

7. And I could go on but it is time to stop...

From the analysis given above, it becomes very clear that there are many contradictions, inconsistencies and subjective interpretations in the CoC assessments and these seem to draw the attention away from the real issues. I hope that the sponsors and developers of the SIDBI-World Bank COCA tool recognize the fact that it far from being a reliable and valid psychometric measure of code of conduct assessments...


All eyes on RBI’s quarterly policy review: Thursday Closing Report

Nifty to move in the range of 4,635 and 4,855

Nervousness ahead of the Reserve Bank of India’s (RBI) quarterly policy review tomorrow induced a high degree of volatility in the market, but a recovery in the second half of trade reduced the losses. Although the National Stock Exchange (NSE) saw a volume of 59.98 crore shares, the highest in past six trading days (including today), the Nifty moved only 17 points. Yesterday we had mentioned that if the index breaches 4,750, the fall may extend to 4,660. The index went well below the level of 4,750 and almost touched 4,660. However, it made a smart recovery in the post noon session. If the index breaches its today’s low, we may see it touching 4,635. But, if the RBI’s signals are seen as positive, we may see the benchmark going up to 4,850.  

The market extended its losses into the second day on economic concerns and continuing worries about the European debt crisis. While headline inflation for November eased to 9.11%, investors were still cautious as other indicators pointed to a marked slowdown in the economy.  Also, Italian funding costs reached a new euro era record at auction on Wednesday, casting doubts on any speedy resolution of the crisis. The Nifty opened 50 points down at 4,713 and the Sensex declined 142 points to 15,739 at the opening bell.

The early decline led all sectoral indices lower with metals and auto leading the pack. Trade remained choppy ahead of the announcement of the weekly food inflation numbers with the indices falling to their intraday lows at around 11.10am. At the lows, the Nifty touched 4,674 and the Sensex retracted to 15,596.

Food inflation falling to a nearly four-year low of 4.35% for the week ended 3rd December provided the much-needed support to the market, which moved upwards after the announcement. The indices almost ventured into the green around 2pm on select buying but selling pressure put a cap on the gains.

Nervousness ahead of the Reserve Bank of India’s quarterly policy review tomorrow pulled the market down once again. A short while later the market scaled its intraday high with the Nifty touching 4,769 and the Sensex at 15,908.

Finally, intense volatility ensured that the market close in the negative for the second day. The Nifty settled 17 points down at 4,746 and the Sensex ended trade at 15,836, a loss of 45 points.

The advance-decline ratio on the NSE was 434:1235.

The broader indices lagged behind the Sensex today as the BSE Mid-cap index closed 1.11% lower and the BSE Small-cap index fell by 1.52%.

In the sectoral space, BSE Fast Moving Consumer Goods (up 0.61%); BSE Power (up 0.56%) and BSE Oil & Gas (up 0.46%) were the noteworthy gainers. On the other hand, BSE Capital Goods (down 1.91%); BSE Consumer Durables (down 1.62%); BSE Auto (down 1.23%); BSE Bankex (down 0.98%) and BSE TECk (down 0.93%) were the top losers.

Tata Power (up 4.09%); Coal India (up 3.83%); Hindustan Unilever (up 2.80%); NTPC (up 2.02%) and Jaiprakash Associates (up 1.48%) were the key gainers in the Sensex list. The major losers were Sterlite Industries (down 3.96%); Bharti Airtel (down 3.40%); BHEL (down 2.48%); Tata Motors (down 2.35%) and State Bank of India (down 2.25%).

The Nifty was led by Tata Power (up 4.90%); Coal India (up 4.18%); IDFC (up 3.80%); Power Grid Corporation (up 3.17%) and HUL (up 3.03%). The laggards on the index were Ranbaxy (down 4.44%); Sterlite Ind (down 3.91%); Sesa Goa (down 3.59%); Bharti Airtel (down 2.91%) and SBI (down 2.60%).

Markets in Asia settled down on economic concerns within the region and across the globe. The Chinese benchmark dropped over 2% after HSBC’s flash PMI reading for December fell to 49—signalling a slowdown in manufacturing activity. Besides, Japanese business mood soured in the three months to December, according to the central bank's tankan survey. The December tankan’s sentiment index for big manufacturers worsened to minus 4 in December from plus 2 three months ago, indicating a strong negative outlook.

The Shanghai Composite tanked 2.14%; the Hang Seng declined 1.78%; the Jakarta Composite shrank by 1.33%; the KLSE Composite fell by 0.87%; the Nikkei 225 retracted by 1.66%; the Straits Times lost 1.39%; the Seoul Composite slipped 2.08% and the Taiwan Weighted tumbled 2.28%.

Back home, foreign institutional investors were net sellers of stocks amounting to Rs140.13 crore on Wednesday, whereas domestic institutional investors were net buyers of shares totalling Rs449.59 crore.

Pharma major Strides Arcolab’s wholly-owned subsidiary Onco Therapies, has received approval from the US health regulator to market cytarabine injections, used in the treatment of cancer, in the American market. According to IMS data, the US market for cytarabine is worth nearly $12.3 million. Strides settled 3.84% to Rs398 on the NSE.

H&R Johnson, a division of Prism Cement, today said it is entering the luxury sanitary-ware business, with plans to achieve revenue of Rs270 crore from the segment in the next two years. The company, which makes tiles among other products, said as part of the plan, it will launch premium bathroom products under the ‘Johnson Intellimate’ line and luxury sanitary-ware as part of the ‘Johnson Senso’ collection. Prism Cement fell 1.82% to close at Rs40.40 on the NSE.

Magma Fincorp, in order to expand its business portfolio, is entering into a new business initiative for which the company has received the requisite approval. The company’s board has passed an enabling resolution to enter into gold loan and housing finance business. The stock tumbled 4.53% to settle at Rs50.60 on the NSE.


Indians now waking up to bring back money saved abroad

While there is much political criticism of black money stashed abroad, many Indians are now waking up to the possibilities of bringing back money saved abroad without violating the Indian laws

Every political party, in particular, the Bharatiya Janata Party (BJP) is criticising the government of allowing black money to be stashed abroad. But there is more to this practice of Indians saving or investing money abroad over the years. There is much stress in the economies and markets in foreign countries, and assets acquired abroad in earlier years by Indians are sometimes depressed now. Many Indians are eager to bring the money back to India, if the government would permit it within the existing laws in India. These issues were discussed in a session by international investment and taxation expert Anil Harish at a Moneylife Foundation seminar on Tuesday, 13 December 2011.

Simultaneously, the Indian government is also trying to get a fix on overseas assets of Indians and exploring the possibility of bringing them under the tax net. Recently, an employee of the foreign bank HSBC gave a list of 700 names of Indians with their overseas bank account particulars to the French government. This was forwarded to the Indian government. The list was taken up for investigation by the Income Tax department. It was found that money stashed abroad could be in trusts, companies under trusts, personal accounts of individuals and numbered accounts of individuals in foreign banks. The I-T department went in for search and seizure operations in some cases of resident Indians and also sent notices to the account holders in the case of non-resident Indians. This is causing tension to Indians, who suddenly have to answer questions on assets abroad.

One example that Mr Harish narrated is of a non-resident Indian, who was questioned by the I-T department. He agreed that he had overseas accounts in London, America and Geneva. The officer wanted to know more about the HSBC account in Geneva. The non-resident admitted that he had $2.5 million in that account and the officer politely corrected him that there was $2.4 million in the account. Clearly, the officer already had the information from the French government through the HSBC employee.

Indians with foreign accounts are being questioned on whether the money emanated from India and whether the income was accrued in Indian transactions or operations. The government is questioning them whether the old remittances are legal and whether there is any tax liability which has been avoided. If found out, these accounts would also come under the Indian government’s tax net.

The Indian government has already given an undertaking to the Supreme Court that there would be no more amnesty schemes to bring back black money saved abroad. With foreign economies already in difficulty, Indians are looking for creative ways to bring back such money back into India legally.

Mr Harish came up with the illustration of a client with money saved abroad, who wanted to bring it back to India. He had litigation with a relative and he was eager to comply with the tax laws and bring the money back. It related to a remittance of $1 million made in the year 1999. By the year 2004-05 it had increased with interest to $1.2 million and by now to $1.5 million. To do so, his approach was to pay income tax in India for the $300,000 of interest income from 2004-05 to now, and if required pay the penalty for late payment, and to bring back the $1.5 million. The I-T department usually limits its investigations to seven years of returns filed by the individual.

Giving an international flavour, Mr Harish referred to the USA, where there is a Voluntary Disclosure Scheme for overseas accounts. Even if there is no tax liability, there is need to disclose the existence of the accounts and to give balances over a period of time. Not complying with the law could lead to the payment of penalty of 25% of peak balances in such accounts from the year 2003.

Thus, there is much excitement and activity in India and abroad, to both investigate money saved abroad, and to bring it back to India, by complying with the laws of the country.




6 years ago


Adi Daruwalla

6 years ago

Why should not the black money be brought back and used for developing the nation. The money stashed abroad is depriving national development. (taxable portion would have helped fill govt coffers and help govt to spend on public projects) So why condone stashers of black money with amnesty schemes? Also Pranab Mukherjee was recently quoted as saying, that if anything happens it will be for future incidents, and that agreements were not in place to take retroactive action for cases that have been identified and lists in possession of the govt. Is he a stand up comedian or what? The nation is reeling under infaltion, public projects get stalled, the rupee is going for a toss, IIP is showing a slow down (now benchmarked to 2005 as the base) spending power of people is slowly going down, how will you improve the facilities and utilities to the public, when you as the finance head of the country cannot show yourself as a paragon of virtue and continue condone these ghastly irregular activities of siphoning of the nations funds.


nagesh kini

In Reply to Adi Daruwalla 6 years ago

UK has levied a one time penalty. This has not to be treated as amnesty.
It should be construed to be only regularizing of an irregularity.

Adi Daruwalla

In Reply to nagesh kini 6 years ago

This irregularity is the sum total of all the mountain peaks of India put together, humungous and the impact on the nation in a derogatory way is also humongous. It is not like fixing a flat tire of a car or four flat tires, as it is so lightly put; regularizing and irregularity, thats what politicians have become famous for and the magnitude and scale of the financial irregularities grows in proportion instaed of reducing or being terminated totally.

Nagesh Kini FCA

6 years ago

I certainly don't condone black money or stashing it abroad. I don't see any valid reasons why its reverse flow into productive avenues like infrastructure, equities and its like, without. having to invite public gaze, amnesty or VDS.

All the same time the money that is tax evaded ought to be subjected tax to a one time tax in atonement.

Kanti Bhatia

6 years ago

Most of the money siphoned off thru various means is routed back to India thru various means and is invested in shares, real estate and gold.

Sanjay Shirodkar

6 years ago

I have used RTI asking for list of people having account in tax haven, total amount in tax haven and total amount recovered from tax haven. In last 60 days RTI application is having cool tour of Ministry of Finance under section 6(3) of RTI thru Dept of Financial Services to BOA section to Economic affairs to Revenue (CBDT) to Receipts officer (RTI cell).... God knows how much it has to travel more???


nagesh kini

In Reply to Sanjay Shirodkar 6 years ago

All the best in your RTI chase.
It requires hell of a lot of patience.
They have to reply.
If they don't knock the doors of CIC.

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