Has MFIN, one of the self-regulatory bodies in Indian microfinance, been accountable for its actions and statements?

The MFIN enquiry initiated in February 2011 (on governance & transparency) is still not in the public domain. The MFIN-sponsored NCAER study, that suffers several serious shortcomings, makes one wonder whether MFIN can function as an objective association—without conflicts of interest—and as an effective self-regulatory body for Indian microfinance

MFIN was formed in 2009 after the Kolar (Karnataka) crisis. Since, then, a lot of water has flown under the microfinance bridge in India. It is in this context that the Hindustan Times (20 October 2011) news item quoting MFIN’s CEO, Alok Prasad, assumes tremendous significance. The article noted, (http://www.hindustantimes.com/business-news/CorporateNews/Microfinance-body-admits-goof-ups/Article1-759651.aspx), “MFI Network (MFIN), an umbrella body of non-banking finance company (NBFC) microfinance institutions (MFIs) that also seeks to serve as a self-regulatory body, admitted that the sector erred in chasing a high growth trajectory at the expense of corporate best practices as it went for coercive methods in loan recovery while keeping interest rates two or three times that of banks.” According to this news article, “Where the MFIs went wrong was in growing too rapidly, lured by the business opportunity, without paying much thought to execution or hiring the right kind of people. And there was a disconnect between the headquarters and the field agents,” MFIN CEO Alok Prasad told HT.”

Indeed, while MFIN needs to be appreciated for its candid (although, late) admittance of what went wrong in Indian microfinance, it also seems appropriate to look at what MFIN has really done to defuse the microfinance crisis in India and the extent to which it has been accountable for its statements and promised actions.

First, please recall that after the 2010 microfinance crisis in Andhra Pradesh (AP), MFIN announced that it would enquire into the suicides in AP, using independent researchers/stakeholders. It is almost a year and we have heard nothing about this report. What has happened to MFIN’s study on suicides is a question that certainly begs an answer. As Prof Sriram notes in an article in Mint (http://www.livemint.com/2011/10/21004414/An-incomplete-story-from-the-m.html?h=B), “It is also a bit intriguing that MFIN has gone to town with this (NCAER Small Borrowing Study) report claiming that all is well with microfinance, while it is shying away from releasing another important study that it had commissioned in AP. This report on the suicides of microfinance clients was done by a credible researcher. Possibly, the findings are not convenient for MFIN to make the report public?”

Second, MFIN ordered an enquiry into the governance and transparency deficit of select MFIs after an Economic Times (ET) investigation in early 2011. As noted in ET (4 February 2011), (http://articles.economictimes.indiatimes.com/2011-02-04/news/28433279_1_mfin-microfinance-institutions-network-shareholding-pattern), “Four days after an ET investigation outlined the deficit in governance and transparency in a shareholding vehicle typical to microfinance institutions, the Microfinance Institutions Network (MFIN) has set up a committee to look into those charges. A statement on Thursday by MFIN, an association of for-profit micro-lenders, said that based on the study’s findings, disciplinary action could be taken. According to Vijay Mahajan, president of MFIN, the inquiry is against three MFIs—Share Microfin, Spandana Sphoorty Financial and SKS Microfinance. The ET investigation centred around the governance of the shareholding vehicle, called mutual benefit trusts (MBTs), in these three companies. MFIs used MBTs, in which poor women were shareholders, to transform themselves from NGOs to for-profit entities. The MFIN statement said: ‘The inquiry will address concerns raised by the media and other stakeholders, vis-à-vis the appropriateness of processes followed during the course of these transformations and the evolution of the shareholding pattern of these entities.’ An MFIN board member Samit Ghosh, the founder of Ujjivan, said there is a possibility that any of the three can be expelled if found guilty. The committee is also expected to draft guidelines for good governance of MBTs. The members of the inquiry committee will be announced on Friday. It is expected to have a banker, an auditor and a retired bureaucrat. The committee will have 30 days to submit its report. Alok Prasad, CEO of MFIN, says the association had been discussing the move for the past three days.”

What happened to this enquiry (and draft guidelines for good governance) is another question that begs an answer.

Third, the MFIN-sponsored the NCAER small borrowing study, that was recently released on 10th October. The NCAER study suffers several limitations as outlined in several previous Moneylife’s articles (given below):

Microfinance institutions not the answer for poverty alleviation, says Jairam Ramesh

(a) http://www.moneylife.in/article/microfinance-institutions-not-the-answer-for-poverty-alleviation-says-jairam-ramesh/20513.html;

The RBI and the Ministry of Finance should view the MFIN-sponsored NCAER study on small borrowings with a great deal of caution
 
(b) http://www.moneylife.in/article/the-rbi-and-the-ministry-of-finance-should-view-the-mfin-sponsored-ncaer-study-on-small-borrowings-with-a-great-deal-of-caution/20566.html

MFIN-NCAER study: Here’s the proof that microfinance agents are thriving in Tamil Nadu

(c) http://www.moneylife.in/article/mfin-ncaer-study-heres-the-proof-that-microfinance-agents-are-thriving-in-tamil-nadu/20717.html

MFIN-NCAER study unearths agents’ role in microfinance, but does not find these middlemen in Chennai

(d) http://www.moneylife.in/article/mfin-ncaer-study-unearths-agents-role-in-microfinance-but-does-not-find-these-middlemen-in-chennai/20674.html.

Whether these limitations are because of poor sampling, conflicts of interest and/or otherwise innocent is something that I leave the readers of Moneylife to judge.

Nonetheless, Moneylife’s views were also subsequently echoed by Prof Sriram who noted in an article (http://www.livemint.com/2011/10/21004414/An-incomplete-story-from-the-m.html?h=B) that “the report falls short of its objectives because of three aspects:

1)    The study was funded by the Microfinance Institutions Network (MFIN), an industry body representing only commercial MFIs. MFIN is an interested party and has been defending the “deeds” and “misdeeds” of the members through the crisis, and would be interested in whitewashing MFIs;
2)    The study was conducted in the urban centers of Jaipur, Lucknow, Chennai, Kolkata and Hyderabad. While the report claims that 70% of the respondents were “rural”, the sampling plan indicates that the “rural” areas were at a maximum distance of 14km from the urban settlement. This is not an inclusive study—it is a study on small borrowing in urban India. While the report refers to “a raging controversy over the role and anti-poor activities of MFIs in India, especially those operating in Andhra Pradesh (AP)” and the three contentious issues namely “usurious interest rates, strong-arm collection tactics, multiple lending and compensation received by top management” as a background for the study, the sample selection is not representative of the problem geographies—Telangana and coastal districts of AP from where reports of borrower suicides were reported. Thus, the findings of the study that there were few instances of multiple borrowing—and where found, it was associated with informal finance and not MFIs—and indicating that there were no strong-arm tactics do not cut much ice. The findings do not come from the same area where the problems existed. Moreover, Jaipur and Lucknow are not great centres of microfinance. The choice of these centres could be justified for an exploratory study and not an evaluative one. These two locations distort the numbers and the conclusions significantly in justifying the role and behaviour of MFIs; and
3)    The vehemence with which the report defends MFIs is problematic, as the objective of the study was to assess the effectiveness of small borrowing. While there are the usual disclaimers that conclusions are drawn on the basis of data from the five clusters, this disclaimer is weak because each time a conclusion is drawn, it is placed along with the problems identified in AP.”

And last, please  recall statements made by MFIN’s Chairman (Vijay Mahajan); MFIN’s CEO (Alok Prasad) and the Chairman of one of MFIN’s largest members (Dr Vikram Akula of SKS), at the height of the crisis—they talked of  ‘Rogue MFIs’ or ‘Fly by Night Operators’ as the ones responsible for the 2010 Andhra Crisis (http://microfinance-in-india.blogspot.com/2010/11/who-are-rogue-mfis-that-have-supposedly.html). This seems directly out of tune with the recent candid admittance of (MFI) guilt by MFIN’s CEO, Alok Prasad. Also, the hard data available and provided below (based on data available in the public domain and the mix-market database) suggests that it is the 13 MFIN members (all NBFC MFIs) who grew at a burgeoning pace during the years (April 2008-March 2010) preceding the 2010 AP crisis (See: The RBI and the Ministry of Finance should view the MFIN-sponsored NCAER study on small borrowings with a great deal of caution).

These are just a few instances and there are many more such happenings, statements and actions where MFIN has not been accountable but the idea is not to find fault with MFIN! However, the issues that arises now are (a) How to make MFIN more accountable for the statements that it makes and the actions that it promises to undertake?, and (b) How to ensure that MFIN and other self-regulatory organisations (SROs) function as responsible and  reliable pillars in the overall microfinance regulatory framework?

Apart from the study on suicides which is yet to be made public, the findings of the MFIN enquiry initiated in February 2011 with regard to governance & transparency are not available in the public domain, despite a promise by MFIN to do so within 30 days. These coupled with the ‘not-so-objective’ MFIN-sponsored NCAER study (that suffers several serious shortcomings) and burgeoning growth of many MFIN members during the years preceding the crisis, makes one wonder—whether at all—MFIN can function as an objective association (without conflicts of interest) and an effective self-regulatory body for Indian microfinance. This question is especially crucial given that the Malegam Committee Report (MCR) lists SROs as one of the major pillars in its regulatory framework.

As usual, I leave it to you all to make your own judgment(s) and sincerely hope that the regulators and concerned authorities looking into creating a regulatory architecture for Indian microfinance take notice of what has been happening amongst self-regulatory organizations (SROs) like MFIN.

 (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).

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    New Motor Vehicles Act: There’s nothing for road users, only wheeler-dealers will gain

    There is much that needs to be done to make the new Motor Vehicles Act more fully representative to meet the aims and aspirations of larger segments of road users, than just catering to the various lobbies that seem to have sprung up and influenced the ‘suggestions’ put forward by ‘expert’ committees

    There is a very interesting document up on the Internet, which pertains to all of us who are in any way out on the roads, in any form whatsoever. The term “road user”, misused for quite some time thanks to a Motor Vehicles Act as well as governance which both together appeared to provide higher rights to owners and operators of private cars and bikes, has been up for serious change for quite some time now, with a new Motor Vehicles Act—aimed at being up to date, and in keeping with certain new realities.
     
    And this is what it is in its current form:
     
    http://morth.nic.in/writereaddata/sublinkimages
    /Expert_Committee_Report8316934244.pdf
     
    Briefly, this is the report of the Expert Committee on review of the Motor Vehicles Act, submitted in January 2011, and this is being debated, contested, whittled down—and in all probability, realigned to fit in with the various interest groups. If you look closely, you will find that the interests of the manufacturers, the road-building lobby and the perpetuation of the “authority” influenced roadside hafta regime—have all been looked after.
     
    Except those of the true road users in India—you and me, trying our level-best to reduce our cost of living as well as seeking a cleaner environment with minimal fuss and stress. And of course, decent mobility—in reasonable safety, comfort and maybe some privacy. We are still prime targets number one, in everybody’s sights. And we don’t have a lobby.

    While the “expert committee” report itself runs into 402 pages, and in its wisdom is aligned in such a way that some pages are in ‘landscape’ mode while others are in ‘portrait’ mode, making online reading an even more onerous task, there are, and were, some specific parts which were supposed to relate to the whole concept of making public transport better and easier for the majority of road users in the country—people who travel by cycles, rickshaws, buses or taxis or other forms of public transport. These recommendations, apart from having a salutary effect on environmental issues by way of lesser emissions as well as reducing road congestion, are also aimed at having an even more important side-effect—a reduction on the load on your wallet by way of making it easier and cheaper for you and me to use public transport instead of private.
     
    However, many of the pro-public transport steps which were going to benefit a large number of road users appear to have simply been diluted or removed altogether, in these recommendations. As with all matters which appear to have a public interest, but end up working against the interests of specific lobbying groups, there is no explanation on why certain proposals were removed. Truth is to be found, increasingly, in what is not published lately.
     
    For example:
     
    1)     While the definition of "stage carriages" has been suitably amended to bring it into line with other definitions, the proposal that licensed and authorised stage carriages were to be exempted from high rates of tolls and entry taxes in the larger social good has been done away with. For those of us who have spent hours at toll booths and local tax barriers while the bus driver and conductors do their paperwork and pay money which eventually reflects in higher fares, the sight of private cars whizzing past without a worry in the world, is what motivates people away from public transport.
     
    2)     Public passenger transport which needs to operate across local borders—municipalities, towns, cities, districts and states—are still being subjected to a complicated system of permits and permissions. Most of which end up requiring influence of the political sort, let it be said openly, as it is a public secret. The cost of these inefficiencies, which could have been reduced if it was set for simply open competition of the transparent-bidding sort, as per a proposal, only adds to costs of travel for the segment of road users—the poor and the middle class—who need it the most. Again, absent.
     
    3)    A "National Register" for driving licences issued anywhere in India, as per a proposal, would have removed the onerous tasks of getting fresh driving licences even for people operating private vehicles. All you would need to do if you moved within the country would be to update address details. However, what appears here is that the "unique driving licence number" on a national basis shall now be introduced, but any time you, the road-user, shift your residence, you will need to get a fresh driving licence with updated address details.
     
    4)    Likewise, a "National Register" for automobiles, which already exists by way of a unique VIN number that is on every motor vehicle manufactured, would have gone a long way in making life easier for people buying and selling motor vehicles. For one, a complete history would be available, from pre-manufacture state onwards. For another, a change in ownership, address, registration number or any other change would follow this nationally valid number throughout. Again, it seems to have been done away with, and whispers say that this was at the behest of the influential stolen vehicle lobby, and that was the end of "number portability".
     
    5)    A proposal requiring standardisation of hand and stalk controls to comply with right-hand drive requirements, setting specifications for safety appliances like airbags and seatbelts, and other design-specific aspects have simply been removed. Again. The one on standardising hand controls is specially important—some manufacturers, especially those of European origin, continue to provide left-hand drive controls on cars sold in India, which in any way you look at it, is unsafe. In a typical RHD vehicle, the indicator stalk is on the right side, and the wiper on the left.
     
    6)    There appears to be almost close to nothing in the proposed Motor Vehicles Act when it comes to the rights and responsibilities of cyclists, pedestrians, animal-drawn vehicles, cycle-rickshaws and other categories of road users. Who, whether defined or not, do make for a huge segment of road users—probably the largest. This is supposed to be India’s Motor Vehicles Act, and part of the brief is to cover the interests of all road users—so maybe the Act itself needs to be re-named? After all, a large number of renewable energy vehicles in the near future are simply not going to fit into the present definition of "motor vehicle" too.

    There is much that needs to be done to make the Motor Vehicles Act more fully representative to the aims and aspirations of larger segments of road users than just catering to the various lobbies that seem to have sprung up and influenced the "suggestions" put forward by the "expert committees". It is time more of us who are road users in various categories stood up and put our views across. Or sit back, and see the roads being taken over by private transport, stuck in our traffic jams.

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    COMMENTS

    Govindan

    9 years ago

    The woes of the owner who sells the vehicle.

    It is a very happy occasion when we buy a vehicle. But at the time of selling the vehicle everyone is worried. It is not because of selling the old vehicle but because of the change of ownership problems.

    Unless the buyer changes the ownership, the vehicle will continue to be in the name of the seller/ original owner. There are umpteen numbers of cases happening that the innocent seller put to untold hardships due to the above. As you have read in the newspaper, some of the terrorists who acted against our country used the vehicle they bought from others. They did not change the ownership of the vehicle. The seller knew it only when the policemen knocked their door.

    One of my neighbors had to pay 1.5 lakhs as compensation when the vehicle sold by him met with an accident. At the time of the accident the vehicle had no insurance coverage. The police registered case against the owner of the vehicle (my neighbor) and he had to spend many years in court room fight the case.

    Some provisions must be added or the law may be amended in order to protect the original owner who sells the vehicle.

    REPLY

    MalQ

    In Reply to Govindan 9 years ago

    Thank you for writing in. A procedure under the MVA - CMVR exists, using Form 29, wherein the 'transferor' submits under receipt the notice of sale to the RTO where the vehicle was registered. It is also helpful to take payment by cheque. It is also important to inform the insurance company that the vehicle has been sold and take a refund of the unused part of the insurance OR transfer the benefit of NCB insurance to another vehicle.

    Hope this helps.

    Humbly submitted/vm

    Govindan

    In Reply to MalQ 9 years ago

    Thank you for your reply. Could you please enlighten me on the following:

    1. Even if there is an agreement between the seller and the buyer or the seller takes the payment by cheque the responsibility is on the RC owner, unless the ownership is transferred. Am I right?

    2. If the vehicle is old and having only third party coverage, should the policy holder report the sale of vehicle to the Insurance Company? (If the Insurance company declines to renew the policy in the original policy holder’s name as per request and the crooked person who bought the vehicle still uses the vehicle without an insurance policy, it is the original owner who will be in trouble if an accident happens. Am I right?)

    3. I would like to know whether submission of form 29 will absolve the original owner of any future legal liability.

    Corporate Accounts: Accounting substandard

    Companies are able to hide more than they reveal and auditors are strangely comfortable with that

    There is an organisation called the Institute of Chartered Accountants of India (ICAI). It is supposed to set standards for fair accounting and transparency in communication of financial information to anyone who reads an audited annual report. It is also obliged to make written comments on any...

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