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No beating about the bush.
The RBI and the Union Finance Ministry must provide clear guidelines on the appointment, roles, compensation and evaluation of independent directors for microfinance companies, critical for effective and ethical operations
As the Reserve Bank of India (RBI) and the Union Ministry of Finance (MoF) work hard on building a clear regulatory architecture for microfinance, they would do well to remember that an important cog in the whole scheme of things is to ensure good corporate governance on the ground. There can be no compromise on that as much of the Andhra Pradesh and Indian microfinance crisis of 2010 can be traced to poor implementation of (existingi) corporate governance standards in MFIs. It goes without saying that 'independent directors' are indeed critical in real time for implementation of any such corporate governance standards in practice. Therefore, the RBI and Ministry of Finance, as part of their mandate to create a permanent regulatory architecture for microfinance, must provide clear (supervisable) guidelines with regard to appointment, roles, compensation and evaluation of independent directors, so that corporate governance in MFIs does not exist merely on paper.
The various specific issues that would have to be looked into by the RBI and MoF, in this regard, are highlighted below.
Practice of CEO hiring board/independent directors in many MFIs
First, in many MFIs, the promoter who is (often) also the CEO, hires the board and this practice needs to be questioned from the perspective of implementing corporate governance directives on the ground. The key questions are: How can boards hired by the promoter/CEO of an MFI be really independent? How will they perform the roles that they are supposed to, to safeguard the interests of various stakeholders including minority shareholders?
Criteria for being an independent director
Second, there is a lack of clear-cut eligibility requirement for independent directors—in terms of objective criteria such as age, expertise and experience (especially related to microfinance) as well as having had past relationships with the same MFI (which can result in significant conflicts of interest). And it goes without saying that the task of identifying independent directors (for MFIs) should indeed be made more transparent and relatively easier and there must be some regulatory guidelines for the same.
Appointment of independent directors
Third, it seems appropriate to vest the powers of appointment of new, independent and executive directors in board nomination committees (at MFIs) specifically constituted for this. These committees should follow a transparent process and lay down clear criteria for selecting board members. Further, an independent director must chair the board nomination committee so that 'truly' independent candidates are hired to the MFI board, and the climate for their 'real' independent functioning is ensured. This is another aspect that the RBI and the Ministry of Finance could look into as part of their ongoing work to create a regulatory architecture for microfinance.
Time spent by independent directors on work at MFIs
Fourth, is the issue of whether the independent directors should be mandated to spend a certain minimum time on work at the MFI and especially, in the field at the grassroots? As an industry observer argues that 'independent directors should be mandated to devote a certain minimum number of hours every quarter (or regular period) so as to understand the business of microfinance and gain insights about the MFIs in which they are serving as directors. This will enable them to examine the risks being taken and the appetite of their MFI to take such risks as well as understand and provide guidance on other strategic aspects, as may be required.' This again could be looked into by the RBI and MoF as part of the guidelines and regulatory architecture being framed.
Number of MFI boards on which an independent director can serve concurrently
Fifth, a related aspect is the amount of time spent by independent directors on board meetings at MFIs annually. When there are people who, at any one point in time, serve as independent directors on several MFI boards, the quality of directorship is naturally likely to suffer. This is especially true of microfinance. It may be appropriate for the RBI and/or MoF to recommend a threshold level for the number of MFIs, in which people (professionals) could serve as independent directors. This is a very critical aspect indeed.
Peer appraisal of independent directors must be made mandatory
Sixth, peer appraisal of independent directors is an option for enhancing their effectiveness in working, and this, again, needs to be examined from the perspective of independent directors in MFIs. While such an appraisal process would need to be managed with associated sensitivities, board members should also view this as an opportunity for continuous learning and improvement. Traditional methods of evaluation (in terms of share valuations/prices and strategy initiatives) perhaps would need to be augmented by a formal and objective appraisal of the independent directors' performance with regard to governance (in terms of various parameters). Such an appraisal should enable identification of gaps in governance, enhance the decision-making process and improve effectiveness of board meetings and various processes at the MFI. This is also an aspect that could be looked at by the RBI and MoF, in the context of MFIs.
Capacity building of first-time (independent) directors
Seventh, another critical area often ignored is the need for continuous education programmes for independent directors, especially for entry or first-time (independent) directors. This is very critical for microfinance which is a nascent field, and especially if we have to ensure that the same people do not serve on the boards of too many MFIs (again causing conflicts of interest). This capacity-building support could be offered through IIMs, or College of Agricultural Banking, or other appropriate institutions. This is a very critical issue and should be examined by the RBI and MoF as part of their mandate to draft detailed regulatory guidelines with regard to (corporate governance in) microfinance.
Compensation of independent directors
Eighth, the compensation of independent directors is a very critical issue and there have been a lot of controversiesii in recent months. The RBI and MoF must surely set standards for the same and ensure that the independence of the independent directors is not compromised under any circumstances. One option would be to entrust this task to the board nomination committee and ensure that the promoters/CEOs do not interfere in setting and implementing norms of compensation for independent directors. While there could be other strategies, I think this is one of the most important issues that the RBI and MoF would need to address.
Protecting client interests on the MFI board
Last, but not the least, the RBI should also examine whether there could be specially designated independent directors, representing client interests. We have directors in banks representing staff interest and the same could be done in microfinance to safeguard client interests. This is especially crucial in MFIs that have and use the Mutual Benefit Trust (MBT) structure, which is indeed a client owned body-please recall that there have been many issues with regard to governance of MBTs in the recent past and the extent to which their interests are being protected in the boards of MFIs. This should be explored by the RBI and MoF as part of the process of drafting of detailed guidelines and building a regulatory architecture for microfinance and suitable recommendations provided. Like compensation, this is indeed a very important issue in MFI governance.
Thus, while enhancing the quality of independent directors would surely enhance governance, there is also a right mindset aspect that we should not forget. As Mr Kris Gopalakrishnan, CEO, Infosys, once said, "We may not be able to eliminate corporate frauds altogether. No amount of regulation will help to stop frauds. At the end of the day, corporate governance is a mindset issue. We need stricter, stronger and quick enforcement of law by regulatory agencies so that it will act as a deterrent for others.iii
Other observers agree. "As a rule rather than exception, MFIs need to practice good governance in order to sustain in the long run. And for this, promoters and senior management must practice good governance at all times including, when faced with the most difficult of situations."
Therefore, while practicing good governance at all times is certainly a mindset issue, the least we can do is to incentivise good governance and, perhaps, penalise bad governance, and do this consistently and without fear or favour. For this, we need a practical guiding (regulatory) framework pertaining to appointment, roles, responsibilities and compensation of independent directors in MFIs and this is something that the RBI/Union Ministry of Finance should gift to the Indian microfinance sector that is perhaps low on its governance quotient, at least at this moment. This is yet another place where regulatory reform could begin.
i There are existing corporate governance guidelines for NBFCs, but many of the aspects, including related party lending, have been kept in abeyance. This aspect assumes greater importance because most of the MFIs are not listed entities and hence, they do not come under the SEBI corporate guidelines/directions as well.
ii Please look at: 'Share Microfin MD takes home Rs7.4 cr, more than double HDFC Bank MD's salary' by John Samuel Raja D & M Rajshekhar, ET Bureau, 1 February 2011.
iii Quoted from The Satyam Saga, by Bupesh Bhandari, Prashanth Reddy Chintala, Vandana Gombar, Latha Jishnu, Shyamal Majumdar and Aanand Pandey, (2009), Business Standard Publication.
(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.)
Den, promoted by a key member of the TV18 team, Sameer Manchanda, is down almost 70%. Even news of a joint venture with Turner hasn’t helped
After its high-profile IPO (initial public offering) in 2009, Den Networks, promoted by a key insider of the TV18 group (Den's chairman and managing director is Sameer Manchanda who helped raise hundreds of crores for TV18) has being going the same way as the TV18 group—savagely destroying shareholder value. Interestingly, TV18 has a stake in Den.
After a couple of disclosures regarding insider trading during November last year, the stock has been on a steady decline. Two months after the announcement of the Star Den-Zee Turner joint distribution venture, the stock is close to its nadir.
"The counter has been marked by insider trading. The company has done well otherwise, but its short term performance is not up to the mark," an analyst told Moneylife, preferring anonymity.
Though the news of compulsory digitisation in February and then of the Den-Turner pact in May created some positive sentiment, the stock's fall remains unbroken. On Friday, Den Networks closed at Rs81.50 on the BSE, 64% down from Rs215.10 in 23rd November last year.
For about a year since its listing in November 2009, the price of Den stayed close to its issue price. On 6th August last year, Den Networks peaked at Rs256. But after it disclosed insider selling as per SEBI (the Securities and Exchange Board of India) norms in November, its stocks took a big hit. The first three disclosures came on 19th November, about company CFO (chief financial officer) Rajesh Kaushall selling some shares which were of pre-IPO acquisition. More disclosures followed on 22nd and 24th November about the digital services president of the company Vikas Dali selling shares, and notices reappeared on 21st January and 3rd March.
On 18th November 2010, the company was trading at Rs229.25. On 23rd November 2010, the stock had fallen by 6% to Rs215.10. From 23rd November 2010, the tumble started, and till 22nd July, it had suffered a 64% decline.
When TRAI (the Telecom Regulatory Authority of India) announced compulsory digitisation of analogue services on 4th February, the company was trading at Rs143.20. While the media sector had a positive outlook about TRAI's move, Den's slide continued. The company attributed its performance to the slow pace of digitisation. On 1st April, the stock reached its lowest level at Rs78.
Revival started with the announcement of the joint distribution deal between Star Den and Zee Turner on 26th May, but even that failed to check the tumble. "We have to see how the company fares once digitisation speeds up," added the analyst.
During the bull run, the highly persuasive and entreprenurial Sameer Manchanda has been a darling of institutional investors when he was a key aide of Raghav Bahl. Manchanda helped TV18 raise hundreds of crores from investors by selling them attractive stories built around the TV18's initiatives covering broadcast, web and films. These haven't worked out so far. Investors have lost money heavily in TV18. When Den was launched, there was a belief that this company will not go the TV18 way because it would have a stable franchise like a utility. This hope too has soured - at least for now.
Company plans to use these kits at its institutes initially, and subsequently sell them commercially
Jetking, one of India's leading computer hardware training institutes, today launched 'Jet Tab', a unique do-it-yourself (DIY) tablet PC, which it believes could replace desktops in the future.
Jet Tab will be used initially at the company's institutes, where students will be taught to assemble the tablet along with training in trouble shooting and tablet synchronisation. The students will be given the tablet free at the end of the 12-day course, for which the fees are pegged at Rs12,999.
In the second phase, the tablet will be commercially launched by end-August. The commercial product, which will also be in a kit format, priced at Rs15,000, will contain a user manual to instruct users how to assemble the tablet. The company is betting on this tablet PC becoming an important mode of learning in the next few years.
"The idea behind DIY is to create a strong attachment between the product and the buyer. As the consumer would himself construct the tablet, it is a sense of pride for him," said Suresh Bharwani, chairman and managing director, Jetking. "Jet Tab will provide essential features such as web surfing, video chatting with ease and speed."
Mr Bharwani explained, "DIY makes people learn about everything that goes into the making of the tablet, thereby enabling people to understand each feature and make optimum use of it with the added skill of addressing trouble-shooting, if at all the need arises. Being an institute first, we wish to train a large number of people, as in the near future we see the tablet PC replacing desktops for the new generation."
The course consists of two daily lectures to be conducted over 12 days, with the focus on providing hands-on-experience to students. Already 360 students of Jetking have enrolled for this course, mainly in Delhi, Mumbai and the Punjab.
Siddharth Bharwani, the company's head of marketing and corporate communication, said, "Currently the course is not mandatory for students. But two-three months down the line it would be part of Jetking's current courses."
Jet Tab is based on the Android 2.1 operating system. The company has made an investment of Rs40 lakh and expects to sell about 60,000 units in the current financial year. The focus will be on the 17-23 years age-group.
"We are mainly targeting the urban markets like Delhi, Mumbai, Bangalore and Hyderabad with a sales target of about 60,000 tablets in 2011-12, starting from September. Initially, Jet Tab would be sold at the company's computer institutes and later at schools and colleges."
The market is already crowded with other PC tablets, like Apple's iPad and Samsung's Galaxy Tab. There are also a few domestic tablets such as Adam Tablet and Olive Tablet.
Asked about the competition, Siddharth Bharwani explained, "Other tablets are more of lifestyle tablets. Our product is designed to educate the masses. Something like edu-Tablet. Our uniqueness lies in DIY format, which will be provided first by us. The tablet PC is the future of learning. From our vast teaching experience, we know the preference of students and other consumers. And hence this product will be launched keeping them in mind."
On the operational and capital expenditure the company sees no threat. "We are a cash-rich, zero-debt company. I don't think capex and opex would be a problem."
On the business, Suresh Bharwani said, "Jetking would soon open an institute in Vietnam by partnering with the local university. We are also aggressively looking into markets such as Nigeria and other South African and SAARC countries."
Jet Tab would provide a warranty of six months and seven inches resistive touch display. It has a 16GB expandable capacity along with a 0.3megapixel camera. Currently, it does not support 3G, but has built-in Wi-Fi connectivity.