It is very easy to talk high flying concepts at conferences and also publicly claim that the same is being applied in practice. In reality, however, much of the intended strategies do not get implemented in microfinance and that is something that conference organizers, industry associations, regulators and stakeholders must take notice
Good morning folks and as I was browsing through the Internet this Saturday, I came across a very interesting video on the web. It was a video clip of Ajay Verma, the then CEO of Sahayata Microfinance, speaking at the 2010 Microfinance India Summit at a session titled, ‘Risks in Microfinance: Current Environment and Mitigation Strategies’
Speaking at the 2010 Microfinance India Summit, Mr Verma touched on three themes:
a) Managing multiple lending: He said that multiple lending can only be managed if organizations themselves drive their credit policy very hard. He said the key is to have a (good) credit policy, adhere to it and build systems to check that the credit policy is working. He also stated that the proposed industry efforts for a credit bureau will help reduce multiple lending. And he also argued that the high (annual) growth of 100%-300% can be better managed if multiple lending is managed as this will then taper down the growth
b) Have engagement at all levels: Here he stressed employee engagement through good training— where there would be emphasis of organizational core values and code of conduct— within the institution. He said that MFIs (microfinance institutions) must have a strong and solid agenda to engage with their employees as it is employees who can create engaged customers. He also said that customer engagement must be absolutely transparent and they must be given complete information on products, charges, fees, etc. His cautioned that it would not be enough to merely provide information to customers but rather more importantly to ensure that they understand various facts clearly. For this, he said that engagement through financial literacy would be necessary so that low-income clients are educated on the dangers of debt trap and the need to invest borrowed money in income generation ventures. He further stressed for open engagement with the local authorities, stakeholders and funders so that information can flow transparently to them
c) Focus on product innovation: He said that 99% of the industry is on a single product and he said that a life-cycle approach must be used to have product innovation. He argued for starting with basic loan and as client income grows, he suggested that MFIs look at education loans, housing loans, etc
The MFIN website (http://www.mfinindia.org/mfin-leadership) still lists Mr Verma as one of its board members and introduces him as follows:
“Ajay Verma | CEO & MD of Sahayata
Ajay Verma is the managing director and chief executive officer of Sahayata microfinance institution. As a former banking professional with extensive experience in risk management, start-up and product management, he brings into Sahayata 18 years of experience from banks across the world, where he was the head of risk for consumer and SME banking. Ajay Verma has worked outside the country for over nine years with companies like GE Capital.”
Sahayata is also listed as a partner with Atomtech (http://www.atomtech.in/partners.html) where Mr Verma’s following statement is given:
“Sahayata supports livelihood initiatives of women entrepreneurs— they have consistently shown a good credit record and have repaid their loans on time. We seek to work towards the upliftment of underprivileged women; strengthening the social fabric by providing women with financial independence and nurturing their entrepreneurial spirit and self-reliance. In our journey, we are happy to be associated with the dedicated and intellectually gifted team at Atom Technologies; and look forward to optimally utilising their customised mobile solutions for microfinance to the benefit of our customers by providing them with a best-in-class service experience.”
Well, all is fine with the above statements including the high sounding concepts and strategies espoused at the 2010 Microfinance India Summit (November 2010) by the then MD and CEO of Sahayata Microfinance. What makes the above video very interesting to view is the fact that, barely, within a year (around November 2011) of his making the speech at the Microfinance India Summit, charges of serious misreporting and mismanagement had surfaced with regard to Sahayata Microfinance—which had until then been the darling of so many investors, lenders and stakeholders.
And as Business Standard, 18 November 2011 noted, “Sahayata Microfinance Pvt Ltd has suspended the brass, including its chief executive, on charges of mismanagement. …The board questioned chief executive, chief financial officer and other senior managers on charges of serious misreporting and mismanagement. ... While chief executive was suspended with immediate effect, the CFO and head of operations were stripped of their duties immediately. They were subsequently suspended.”
The icing on the cake is the fact that Sahayata had also won several awards and recognitions (national and international) for its good governance, innovative practices and the like and readers may want to read a previous Moneylife article that sheds light on this and other aspects with regard to Sahayata Microfinance going astray (Award winning Sahayata Microfinance is the latest to go astray)
Ok folks, the larger point I want to make is that it is very easy to talk high flying concepts at conferences and also publicly claim that the same is being applied in practice. In reality, however, much of the intended strategies do not get implemented in micro-finance and that is something that conference organizers, industry associations, regulators and stakeholders must take notice of with regard to Indian microfinance. And therein lies the pathway to overcome the present impasse and I sincerely hope that the Indian micro-finance industry recognizes this basic fact and devises appropriate strategies to overcome this serious gap between policy and implementation. And what better place than the on-going 2011 Microfinance India Summit to be a natural starting platform for this introspection with integrity…
(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)
The weakened 48th Report on the Lokpal Bill was released by Dr Abhishek Manu Singhvi, chairman of the standing committee. Interestingly, the Bill was first initiated by his own father Dr L M Singhvi, aimed at creating a strong anti-corruption law, based on the Scandinavian model. Here is a brief history of the Lokpal Bill and how it got weaker over the years
This is The 48th Report on the need for a Lokpal, tabled in Parliament on 9th December has caused Anna to announce another round of agitation. While the Prime Minister had provided an official, written assurance to Anna Hazare conveying the ‘sense of the house’ on inclusion of three contentious issues, these have been thwarted in the report. They were: bringing in the lower bureaucracy under the ambit of the Lokpal Bill; having a citizen charter and instituting lokayuktas in every State.
Lets look at the history of the Lokpal Bill against the backdrop of the one day agitation called by Anna Hazare at JAntar Mantar today. The move for a Lokpal bill was first initiated by Abhishek Manu Singhvi’s father, Dr L M Singhvi in 1964, as the son points out in the 48th report on the subject.
In the introductory part of his report, Singhvi’s, rather uncharitably terms Anna’s movement as ``demonstration.’’ Chapter 2 says: ``Though the Lokpal Bill, 2011 was referred to the Committee on August 8, 2011, it was followed immediately by a demonstration by Team Anna, a large gathering at Ramlila Maidan and a fast by Shri Anna Hazare. These events occupied the space from 16th to 28th August, 2011.’’
But even a quick reading of the report shows that this is far from the truth – when a few lakh people demand a statutory enactment whose journey began in 1964, it can hardly be likened to a petulant “demonstration” led by one man.
Lets start by looking at Singhvi’s Lokpal report itself to see how the objective of instituting an Ombudsman ( based on the Scandinavian model) to crush corruption has been diluted in its journey over the decades. It says:
"The initial years following independence witnessed legislators conveying the people’s concerns to the Government over the issue of corruption through raising of questions and debates in Parliament. At that time, the scope of the debates was contextually confined to seeking information from the Government about its anti-corruption measures and to discussions regarding the formation of anti-corruption committees/agencies and vigilance bodies to put a check on corruption, but it clearly reflected the seriousness on the issue of corruption in the minds of Members.
"Acknowledging the need for a thorough consideration of the issue, the Government set-up a Committee under the Chairmanship of Shri K. Santhanam to review the existing instruments for checking corruption in Central Government.
``The Committee inter alia recommended the creation of an apex body for exercising superintendence and control over the vigilance administration. In pursuance of the recommendations of the Santhanam Committee, the Government established the Central Vigilance Commission through a Resolution on 11.02.1964. The Commission was concerned with alleged bureaucratic corruption and did not cover alleged ministerial corruption or grievances of citizens against maladministration. While laying the report on the creation of the CVC on the table of the House, the then Deputy Home Minister, interestingly recognized that the Commission would be overburdened if the responsibility to redress the citizens’ grievances against corruption were to be placed upon it and the Commission might, as a result, be less effective in dealing with the core problem of corruption.
``While the country had been grappling with the problem of corruption at different levels including at the level of Parliament, there emerged globally, and especially in the Scandinavian countries, the concept of Ombudsman to tackle corruption and/or to redress public grievances.
"A proposal in this regard was first initiated in the Lok Sabha on April 3, 1963 by the Late Dr. LM Singhvi, MP. While replying to it, the then Law Minister observed that though the institution seemed full of possibilities, since it involved a matter of policy, it was for the Prime Minister to decide in that regard.
"Dr. LM Singhvi then personally communicated this idea to the then Prime Minister, Pandit Jawaharlal Nehru who in turn, with some initial hesitation, acknowledged that it was a valuable idea which could be incorporated in our institutional framework. On 3rd November, 1963, Hon’ble Prime Minister made a statement in respect of the possibilities of this institution and said that the system of Ombudsman fascinated him as the Ombudsman had an overall authority to deal with the charges of corruption, even against the Prime Minister, and commanded the respect and confidence of all. Resolutions, in this behalf in April 1964 and April 1965 were again brought in the Lower House and on both occasions, during the course of discussions, the House witnessed near unanimous agreement about the viability, utility and desirability of such an institution. However, in his resolution, the Member of Parliament (Dr. L.M. Singhvi) did not elaborate upon the functions/ powers of the institution, but instead asked for the appointment of a Committee of Members of Parliament who would consider all the complex factors relating to this institution and would come forward with an acceptable and consensual solution. While making a statement in the House on 23rd April, 1965, Dr. L.M. Singhvi elucidated the rationale of the institution as“.....an institution such as the Ombudsman must be brought into existence in our country. It is for the sake of securing justice and for cleansing the public life of the augean stable of corruption, real and imaginary, that such an institution must be brought into existence. It is in order to protect those in public life and those in administration itself that such an institution must be brought into existence. It is to provide an alternative to the cold and protracted formality of procedure in course of law that such an institution should be brought into existence. There is every conceivable reason today which impels to the consideration that such an institution is now overdue in our country....’’
``These efforts set the stage for evolving an institution like Ombudsman in India and consequently, the idea of Lokpal surfaced in the national legislative agenda. Later, the Government appointed an Administrative Reforms Commission which in its recommendation suggested a scheme of appointing Lokpal at Centre and Lokayuktas in each State.
"Thereafter, to give effect to the recommendations of the First Administrative Reforms Commission, eight Bills were introduced in the Lok Sabha from time to time. However, all these Bills lapsed consequent upon the dissolution of the respective Lok Sabhas, except in the case of the 1985 Bill which was subsequently withdrawn after its introduction.
``A close analysis of the Bills reflects that there have been varying approaches and shifting foci in scope and jurisdiction in all these proposed legislations. The first two Bills viz. of 1968 and of 1971 sought to cover the entire universe of bureaucrats, Ministers, public sector undertakings, Government controlled societies for acts and omissions relating to corruption, abuse of position, improper motives and mal-administration.
"The 1971 Bill, however, sought to exclude the Prime Minister from its coverage. The 1977 Bill broadly retained the same coverage except that corruption was subsequently sought to be defined in terms of IPC and Prevention of Corruption Act. Additionally, the 1977 Bill did not cover maladministration as a separate category, as also the definition of “public man” against whom complaints could be filed did not include bureaucrats in general. Thus, while the first two Bills sought to cover grievance redressal in respect of maladministration in addition to corruption, the 1977 version did not seek to cover the former and restricted itself to abuse of office and corruption by Ministers and Members of Parliament. The 1977 Bill covered the Council of Ministers without specific exclusion of the Prime Minister.
"The 1985 Bill was purely focused on corruption as defined in IPC and POCA and neither sought to subsume mal-administration or mis-conduct generally nor bureaucrats within its ambit. Moreover, the 1985 Bill impliedly included the Prime Minister since it referred to the office of a Minister in its definition of “public functionary.”
The 1989 Bill restricted itself only to corruption, but corruption only as specified in the POCA and did not mention IPC. It specifically sought to include the Prime Minister, both former and incumbent.
Lastly, the last three versions of the Bill in 1996, 1998 and 2001, all largely;
(a) focused only on corruption;
(b) defined corruption only in terms of POCA;
(c) defined “public functionaries” to include Prime Minister, Ministers and MPs;
(d) did not include bureaucrats within their ambit
Beyond all the buzz, when can we embed social performance within practice?
Social performance is the ‘in’ thing in micro-finance and an entire session is devoted at the Micro-Finance India summit towards the same and a special social performance report is also to be released at the Summit. The Micro-Finance India Summit session is titled, “Beyond the Buzz, Embedding Social Performance within Practice” and the emphasis of the session is described below
Session Outline: Beyond the Buzz, Embedding Social Performance within Practice
There is a multiplicity of methodologies and indicators which emphasize inclusion of social performance standards in concurrence with financial performance. There is also an emphasis from investors as well as lenders on incorporation of Social performance metrics and on adherence to code of conduct. Against this backdrop, MFIs are undertaking objective steps to manage and enhance their social performance, which range from changes in product features and delivery processes, communication with clients, human resources management practices including emphasis on women supportive work policies, governance, internal audit and control mechanisms, MIS and so on. The Microfinance India Social Performance Report is an initiative to comprehensively document the efforts of MFIs and other players to better manage and report on the social performance based on some field evidence. The session will review the findings of this report and discuss the process and progress of deeper internalization of SPM within the sectoral practice and highlight avenues for the way forward. Source: http://www.microfinanceindia.org/content/35/63/blog.php
Readers would recall that Moneylife has already commented on this new development in the field of micro-finance. (Microfinance: Will seal of excellence and social performance management as yardsticks work?)
That said, while it is great to talk of social performance, internal controls and the like, a key question here is: How to enforce this on the ground in a practical sense when you have multiple agents (MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu) colluding with fraudulent staff (often hired without serious background checks and practically no training) and MFIs that rely heavily on a fully decentralized model that has all the wrong incentives? (How and why did microfinance agents become a part of the Indian microfinance business?; Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill; and Proposed Microfinance Bill has to look at the centre leader as a microfinance agent)
Further, given that a lot of growth has occurred (and is perhaps still occurring) through outsourcing to agents, where the end user clients may not be strictly traceable, how can social performance be enforced in a practical sense? What lessons can the Indian and global micro-finance industry learn from past efforts to enforce codes of conduct and the like? (We all know what happened after the 2005/6 Krishna crisis in India)
Also, when simple internal controls (and internal audits) were busted and disregarded during the burgeoning growth phase of Indian micro-finance, which saw the phenomenal rise of multiple lending and other malpractices, with what confidence can we expect social performance to be implemented on the ground? (Increasing frauds, internal lapses at MFIs: Need to strengthen supervisory arrangements to protect the poor)
And finally, when MFIs operate using different kinds of agents in an outsourcing model, how can one be sure of the data that is provided by the MFIs with regard to social performance management? How can we rely on self - report data that is supplied by the MFIs with regard to these, especially when many MFIs may not even be aware of who their clients are because of the prevalent agent models? This question becomes even more relevant when we consider the recent experience of Sahayata Micro-Finance (Award winning Sahayata Microfinance is the latest to go astray)
Accordingly, I raise several (further) specific questions - for the presenters and discussants in the social performance session of the Micro-Finance India summit and social performance management advocates and practitioners - with regard to the agent led decentralized model. I hope that the concerned stakeholders factor these into their discussions on social performance management at the Micro-Finance India Summit:
When center leaders or others act as agents at the last mile, how can reliable and valid information about products and processes be obtained and used in the social performance management assessment? (Proposed Microfinance Bill has to look at the centre leader as a microfinance agent)
When end user clients are (themselves) not known, as in many cases, what client level data can be obtained and used in the social performance management process? This aspect becomes exacerbated when one considers the fact that MIS in micro-finance is far from satisfactory (Establishing standards for effective management information systems for MFIs)
When the monitoring for the last mile stops with the agent, what real assessments can be done with regard to various social performance objectives? (MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu)
When end use is unclear and end user clients are unknown, as in many agent led models, how can client impact be measured? (How and why did microfinance agents become a part of the Indian microfinance business?; Implementation safeguards against notorious agents are an imperative for the proposed microfinance bill)
Thus, under circumstances such as the above, it would be impossible to assess aspects such as the following, so critical for social performance management: (1) Who uses and who is excluded from using the MFIs services?; (2) How do the MFI’s clients use the MFIs services?; (3) Do MFI services meet their client needs?; (4) Why do some clients leave or become inactive?; (5) Who benefits and how?; and (6) What benefits were unexpected?
When one considers these and other questions, the credibility of social performance management, as a sub-field of micro-finance and financial inclusion, is seriously at stake. I sincerely hope that the presenters and discussants at the Micro-Finance India Summit, who are also the so called practitioners of social performance management, address the aforementioned real ground level issues rather than merely focus on high level concepts that can at best be described as superfluous and, perhaps, even redundant.
Hence, while social performance sounds fantastic on paper, any talk of social performance is meaningless when one looks at the current ground realities in Indian micro-finance. While these concepts sound excellent at a conference in Delhi (like at the Micro-Finance India Summit), from visits to the hotbeds of micro-finance in Tamil Nadu and Andhra Pradesh among others, it is clear that enforcing social performance on the ground is an almost impossible task. This is especially true given the huge level of decentralized operations in current day micro-finance and the manner in which this model has evolved and the associated motivations therein. With the huge (and perhaps increasing) presence of agents (or ring leaders) and their all pervasive role, social performance is therefore more likely to be a mirage rather than reality!
Therefore, using so called tools of social performance or seals of excellence - merely to justify the existence of such (and especially, for-profit) MFIs that sound GREAT on paper but are rarely implemented (or visible) on the ground - certainly does not befit the status of an industry like micro-finance that has pledged its troth to financial inclusion and inclusive growth. And it is about time that we start asking the question as to why many so called great concepts (like social performance or even principles of corporate governance etc) are not implemented on the ground rather than creating newer and newer tools that may have lesser and lesser relevance to field realities. And such questions will have to focus on the flawed business model adopted by the NBFC MFIs, the greater use of agents in a decentralized model, increased sharing of JLGs/clients and the like. Let us make no mistake about that!
And, my humble plea here is as follows: The micro-finance industry needs to tackle issues head on and ensure that low-income people get access to a wide range of appropriately designed and delivered high quality financial services at affordable costs. And this does not have to come from MFIs and for profit MFIs alone. Retailing by banks and delivery of such financial services by community development finance institutions (like Cooperatives) should also be strongly encouraged – and this is a point that needs to be noted carefully and appreciated by various industry stakeholders. Therefore, let us stop creating tools and instruments to merely justify existence of for profit MFIs and rather focus on building a REALLY transparent client oriented micro-finance industry on the ground with pluralistic institutions, that can serve clients in an effective (doing the right things) and efficient (do things the right way) manner. That alone will help bring back glory to the beleaguered micro-finance industry in India as well as globally. I hope that the session on Social Performance at the 2011 Micro-Finance India Summit drive home these points in a convincing manner.