Companies & Sectors
Ten practical steps to eliminate multiple, over and ghost lending at MFIs

The idea of thinking that a credit bureau alone could eliminate multiple, over and ghost lending and usher in responsible micro-finance lending seems very naïve. In fact, this could result in the credit bureau becoming a red herring rather than an actual solution. And unless the systemic issues are addressed, responsible micro-finance lending will remain a distant dream

The term ‘responsible micro-finance lending’ has become a buzz word after the 2010 Indian micro-finance crisis and I keep hearing many stakeholders drop this phrase, every now and then, in (industry) conversations. There is also a responsible micro-finance project of the World Bank being implemented through SIDBI. While all these stakeholders recognise the fact that multiple, over and ghost lending led to the 2010 crisis, they simplistically state that all these ills will simply vanish, lo and behold, if only MFIs were to adopt the mantra responsible micro-finance lending.

Okay, what then can perhaps help eliminate multiple, over and ghost lending in Indian micro-finance? In my opinion, there are several things that need to happen and I hope that the RBI, the micro-finance industry and other stakeholders work together in ensuring that these happen on the ground.

Re-Orienting the MFI Vision: The boards of MFIs must first be able to re-orient their organisational vision to one of responsible finance—this means they will have to move away from the desire of some MFIs for ‘super fast’ unnatural growth and high profits (to gain better valuations in investment and go for an IPO at a premium etc) to balanced natural growth and normal profits. Much of the motivation for multiple, over and ghost lending appears to be related to the above and unless this (perverse) vision is altered, no amount of technology (including the most sophisticated credit bureau) can perhaps prevent such erroneous lending. Technology was touted as the solution in 2005-6 after the Krishna crisis and you can judge for yourself what it has achieved so far. As a previous Moneylife article on MISi suggests, even the most basic issues with regard to an MIS still need significant attention in Indian micro-finance.

That said, further, even when the boards make an impassioned plea for responsible micro-finance lending, the MFI’s senior management must be able to translate the above vision into action by bringing about the necessary changes in systems, policies, procedures, processes, staff attitudes, etc. This is very critical as otherwise, ‘intended strategies’ will remain on paper and realised strategies will be very different. It is like what Jack Welch, the famous CEO, commenting on the new breed of strategic planners in the 1980s, once said, “There is no point in developing great plans with lot of effort when you are going to do something else on the ground. Often times, organisations put these well-prepared plans in the shelf and lock them up and get around to doing what they are anyway doing.”

Therefore, once the MFI board and senior management have done what they have to do, then it may be possible to check multiple, over and ghost lending and usher in responsible micro-finance lending provided:

a) Internal control systems have sufficient checks/balances with regard to loan disbursement, loan collection, client selection, etc, and these controls properly work on the ground. Proper functioning also means that MFIs are willing and able to take action against errant staff/stakeholders in real time, as and when the frauds and exceptions are spotted. Ideally, systems should deter frauds/exceptions, failing which, they must at least swiftly and appropriately punish staff/stakeholders who have caused these frauds in the first place,

b) Internal audits spot multiple lending exceptions, as and when they occur and recommend/ensure immediate corrective action on the ground. This suggests that the internal audit department reports directly to the board or audit committee and auditors have complete independence from the senior and/or operational management, whose functions and systems they are to audit,

c) MIS provides accurate branch/field level data both from the perspective of the credit bureau (CB) and also in terms of portraying ground level reality, so that multiple, over and ghost lending can be tracked and dealt with in real time - this is a very critical aspect. This also means that MFIs know their end user clients and have a proper verifiable record of all transactions backed by pre-numbered and properly dated receipts/vouchers with all necessary details,

d) Field level frontline and all other staff are NOT incentivised on irresponsible disbursements, reckless burgeoning growth and coercive repayments. In fact, they must be trained and sensitized to believe in and work towards responsible micro-finance lending—where multiple and reckless lending through the agent-led decentralised model is viewed as a bane rather than boon for the organization. It goes without saying that the reward system and human resources function (in general) must be compatible and foster responsible micro-finance lending on the ground,

e) MFIs wholeheartedly decide to adopt green field client acquisition processes where they form new joint liability groups (from scratch) by themselves. Thus, they must commit to not indulge in other types of (not-so-desirable and fast tracked) client acquisition methods (like acquisition of JLGs through breaking of SHGs etc) in their field operations. Most importantly, they must walk the talk with regard to these commitments. Of course, robust implementation of client level controls and periodic verification/action by the internal auditor would go a long way in helping MFIs to sustain their commitment to green-field process of client acquisition,

f) Bankers exercise appropriate due diligence with regard to multiple, over and ghost lending, as part of their (notional) supervisory role in discharging their priority sector obligations. This calls for appropriate planning of field visits by bankers with a view to spend sufficient time at the grass-roots and engage in effective on-site monitoring of actual clients, physical/virtual records, their comparison, etc,

g) The Reserve Bank of India (RBI) ensures appropriate supervision on the ground, with regard to practices of its (NBFC) MFIs—on aspects such as multiple, over and ghost lending, as part of its on-site and off-site supervision obligations stemming from its non-bank supervision duties, and

h) The RBI ensures appropriate supervision on the ground with regard to lending and monitoring practices of DFIs and commercial banks—in relation to public/priority sector funds with a view to prevent multiple, over and ghost lending in real time.

This and much more—all with a view to put clients and their situations/needs first—would have to be done to ensure stoppage of multiple, over and ghost lending and usher in an era of responsible micro-finance lending. Therefore, the idea of thinking that a credit bureau aloneii could eliminate multiple, over and ghost lending and usher in responsible micro-finance lending seems very naïve – let us not forget our past experiences with the voluntary codes of conduct (which were not implemented on the ground). In fact, this naiveté could result in the credit bureau becoming a red herring rather than an actual solution, because, as of now, it seems to be distracting the micro-finance industry and its stakeholders from the real systemic problems at hand that need to be urgently and comprehensively tackled. And unless these systemic issues are addressed, responsible micro-finance lending will remain a distant dream and merely a paper concept…

i Please see Moneylife article on MIS for MFIs -

The credit bureau is a very positive development. Also, it needs to be understood that a credit bureau is a necessary but not sufficient condition for responsible micro-finance lending!

(The writer has over two decades of grassroots and institutional experience in rural finance, MSME development, agriculture and rural livelihood systems, rural/urban development and urban poverty alleviation/governance. He has worked extensively in Asia, Africa, North America and Europe with a wide range of stakeholders, from the private sector and academia to governments).


Notwithstanding the Registry, how transparent are clinical trials in India?

The shocking details of 1,600 casualties in our country during clinical trials of drugs in just last three years reflect the casual approach of multinational companies as well as the DGHS. Even the mandatory norms for providing information on the website of Clinical Trials Registry are not being followed

If the increase in numbers of volunteers for clinical trials of drugs is anything to go by, then India seems to be the hot bed for such trials. What's worse is the high number of deaths during such trials which were kept secret by the Director General of Health Services (DGHS) until Hisar-based activist Ramesh Kumar tenaciously procured the information through an Right to Information (RTI) application. Over the past three years, 1,600 volunteers used as `guinea pigs' by multinational companies (MNCs) for clinical trials have died and so far families of just 22 deceased have been compensated.

(Read:Indians as guinea pigs: Clinical trials killed 1,600 people in the past two years; only 22 compensated for fatalities). This highlights the casual approach of the pharma companies especially the MNCs, towards the life and health of such volunteers as well as the utter negligence by the DGHS in enforcing stringent norms, procedures set by the World Health Organisation (WHO) for such trials.

What is a Clinical Trials Registry (CTR)? As per the WHO guidelines, the CTR means any research or study that assigns human participants or groups of humans to one or more health-related interventions to evaluate the effects of health outcomes and details of such a study should be publicly accessible, online. In our country, the CTR records are maintained by the Clinical Trials Registry India (CTRI) on its site It is a free and online system for registration of all clinical trials being conducted in India. As per a notification of the Drugs Controller General (India), registration of clinical trials with the CTRI is also now mandatory.

The Clinical Trials Registry- India (CTRI) has been set up by the ICMR's National Institute of Medical Statistics (NIMS) and is funded by the Department of Science and Technology (DST) through the Indian Council of Medical Research (ICMR). It also receives financial and technical support through the WHO, WHO-SEARO, and the WHO India Country office. However, a search through a series of registrations of clinical trials does not throw up much information in terms of regular progress of the clinical trials. The information available appears to be more like 'selective uploading' than providing complete details in transparent manner.

According to an editorial in a noted medical journal, ( the registration of clinical trials which is meant to improve reliability of data generated, help clinicians interpret research, minimize duplication of trials, and prevent exposure of volunteers to potential risks, has faltered in several ways.

The editorial states: "While participants of clinical trials volunteer with an altruistic motive, it is too well known that still all is not well in experiments involving human subjects. Clearly, there have been reports that trials have failed in their objective to carry out experiments fairly, report honestly and follow the ethical principles in India and abroad.

``There have been several instances of selective reporting or not reporting at all depending upon the outcome of the trial and when financial interests are at stake. Despite best efforts to ensure transparency and honesty, most initiatives to discourage the conduct of unethical trials have largely been unsuccessful.'' (source: K. Satyanarayana, Anju Sharma, Indian Journal of Medical Research and others)
Such clinical trials of drugs directly involves health and well being of the public. Therefore it is mandatory for the DGHS to put up every details of clinical trials - both successful and unsuccessful - on the website under Section 4 of the RTI Act. This makes sure that besides the medical and research fraternity, people too can get an insight into the latest research of drugs.

RTI activist Ramesh Verma, however raises questions about the authenticity of such trials and its outcome. He says, ``There have been several instances wherein pharmaceutical companies have launched their drugs and after ten years or more, the same medicine is declared harmful for people. So, what is the authenticity of such clinical trials?''
 Human guinea pigs go cheap in India!

The following information came through Verma's RTI application. It shows the compensation amount paid to 22 volunteers (out of a total 1,600)  who died during clinical research of drugs. Will the DGHS put up details of every case of how each one died, what was the name of the drug on which each one of them was being experimented on? We have the right to know this vital information, which affects the health and life of people.

Statistics of clinical trials procured from
(Note the increase in number of volunteers)

Compiled by Deapica Ravindran [email protected] and Sachin Nikarge [email protected] with assistance from Maulik Mavani, Centre for Studies in Ethics and Rights, Mumbai.


FMCG companies feeling inflation heat; rule out immediate price hike

Beverage majors like Coca-Cola and PepsiCo said high raw material prices are affecting their businesses, forcing them to adopt cost effective measures to offset high input cost

New Delhi: Leading FMCG firms PepsiCo, Reckitt Benckiser and Coca Cola on Wednesday said they are feeling the heat of high inflation which is putting pressure on overall cost, but ruled out price hikes in the immediate future, reports PTI.

“Inflation is biting and is a concern area for us and for others. We are not able to pass on the entire cost to the consumer, nor do we think we should,” Reckitt Benckiser (India) chairman and managing director and regional director (South Asia) Chander Mohan Sethi said.

“However, that automatically leads to pressure on our overall operating model,” he added.

Food inflation has been hovering at over 9% in the last few weeks. Though in the week ended 10th September it dipped to 8.84% from 9.47% in the previous week, prices of key commodities continued to rule high.

Beverage majors like Coca-Cola and PepsiCo have also said high raw material prices are affecting their businesses, forcing them to adopt cost effective measures to offset high input cost.

Commenting on the situation PepsiCo India chairman Manu Anand said, “Clearly, like everyone else, we are facing pressure. Our attempts are to ensure maximise productivity and minimise the impact of passing to consumers.”

Coca Cola India chief executive Atul Singh has also said that inflation is impacting its business but is not looking at raising prices.

“Inflation is there and it has also affected us, but we are not looking at raising prices,” he said.

Apart from price increases in the past to counter high input costs, the company is also formulating cost-efficient ways to reduce the impact of surging raw material prices, particularly on packaging.

“We are focusing much more on productivity and trying to see what all we can take out on non-value cost to the consumers on every area of the supply chain so that we are able to minimise the price increase.”


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