Hinduja Ashok Leyland introduces the user-friendly Dost in a low-key launch

The small, full-forward mini-pickup has become the visible face of the new Indian auto evolution—just like what the Maruti 800 and Omni vans managed about 20-30 years ago

There have been a lot of big-bang launches lately from the likes of Chevrolet and Ford. But what many might have missed is the rather low-key launch of the small goods- & people-carrier from Hinduja Ashok Leyland. Named the 'Dost', this lands up straight in Tata Ace territory, but with a bigger engine, bigger cabin, bigger tyres and bigger payload. The on-road cost, however, is close to that of the Tata Ace. And the man behind it, Dr V Sumantran, was there at Tata Motors for the Ace too. As Moneylife readers will know, this is a very interesting segment.

With the changing landscape in the non-Metro areas, this small all-products and passenger-carrier category, becomes an even more interesting upcountry vehicle. Take a drive anywhere in India and you will see how, from nowhere, the small full-forward cab kind of mini-pickup has become the visible face of automobile evolution in India-just like the Maruti 800 and Omni vans did about 20-30 years ago. Only, this lot, the Tata Ace, Hinduja AL Dost and similar vehicles, run on diesel and can lug a lot more. And retain resale value quite well, too.

Volvo trucks, which have an interesting joint venture with Eicher Motors for larger engines, are doing the same in India. After a decade and a bit more of a sort of monopoly in the luxury bus and high-powered trucks business, they are suddenly in the line of competition in this segment from India and abroad with Mercedes-Benz, MAN, Tata Daewoo Commercial, Hinduja Ashok Leyland—and that home-grown dark-horse, Asia Motor Works from Bhuj.

In a recent initiative, Volvo Eicher has tied up with specific engineering colleges in Mohali/Chandigarh, Ahmedabad and Mysore to train young people in specific automobile fields. This is social responsibility with a vision and it is hoped that other manufacturers also do something similar soon, instead of constantly complaining about the lack of trained manpower.

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8 years ago

vechicle is very nice, your colour selection is very good, i like this vehical because appearance is very good,compare to other company vechical our ashok lyland company product is very nice to all purpose

Local level supervision is critical to ensure consumer protection in microfinance

Self-regulation in the microfinance business has not worked for various reasons. Most importantly, it involves the distribution of small sums, almost totally in cash, to people who are vulnerable, and in areas so widely spread out that it is quite impossible to ensure fairness on a day-to-day basis

Just after the microfinance crisis of 2005-06 in Krishna district of Andhra Pradesh, when around 50 branches belonging to two of the then largest microfinance institutions (MFIs) were shut down by the state administration, I heard several microfinance industry stalwarts arguing that a code of conduct, together with competition, would ensure protection of low-income consumers. However, as the events of the last few years have shown, that has sadly not happened and there have been serious violations with regard to the rights of microfinance consumers.

Two aspects are noteworthy here: (1) Neither has competition between many MFIs been able to fully address consumer protection issues on their own, and (2) nor have codes of conduct for responsible lending (often cited as a substitute for regulation) been able to improve the business practices of many MFIs.

One, as far as I have seen, in many places in India (Andhra Pradesh included) competition has merely ensured that some MFIs repeatedly provided a rather limited group of consumers with a flood of standardised loansi resulting in over-lending, multiple-lending, etc. Further, practices surrounding the delivery/distribution of these financial services, including access to transparent information, have always been under question. Therefore, much more than competition is required to ensure efficient and fair markets, especially with regard to delivery of microfinance services to low-income people. This is because MFIs are indeed selling the most attractive product (money) on the face of this planet to a large set of vulnerable people, who are struggling even for their day-to-day survival.

Two, in the Indian microfinance sector, self-regulation, through such voluntary codes of conduct, has not worked because of several reasons: (a) The institutional capacities of industry associations (MFIN or Sa-Dhan) have often been limited. (b) Microfinance markets are highly concentrated and dominated by a small number of large MFIs, as a result of which conflicts of interest are also very high. (c) The legal framework for microfinance services is underdeveloped and perhaps even flawed, as it does not take into account the special nature of microfinance. And, (d) the available laws and regulations (like the Reserve Bank of India's code of conduct for NBFCs) are not enforced due to lack of sufficient (local level) supervision and oversight.

In fact, when the Sa-Dhan code of conduct was introduced in 2006-07, I had a very open mind and felt that it may act as a useful first step, particularly if the regulator (or supervisor) oversaw the implementation of this code and reported on its ground level effectiveness. However, that did not happen and it is clear that mere paper codes are not sufficient to improve business practices and the operational model of MFIs. If only the Sa-Dhan code of 2006-07, or MFIN code of 2009-10 had been implemented on the ground, then, we would not have had the 2010 (and ongoing) microfinance crisis at all.

Hence, it is imperative for the Government to consider introducing special consumer protection provisions (in its regulatory architecture) for microfinance and this must be backed by appropriate (local level) supervision so that the relevant laws and provisions are actually enforced on the ground. I was naïve to think that good central level regulation and supervision (either through the RBI or any other body designated by the Ministry of Finance) would alone be enough to ensure responsible microfinance business. However, based on the lessons from the 2010 crisis, I am now fully convinced that local level supervision is a must to ensure client protection in real time.

Let us try and understand the nature of microfinanceii and the kind of financial assets that it creates. Microfinance loan assets have several peculiarities that need to be carefully considered while devising regulation and supervisory arrangements, especially related to consumer protection-irrespective of whether MFIs (different legal forms) or business correspondents (various types of legal entities) are involved in the last mile financial intermediation. There are four major peculiarities:
> Microfinance loan assets tend to be predominantly small in amounts, but large in number.
> While the transactions are also small, they are, however, numerous (repetitive) and most often, predominantly cash oriented; this makes it difficult to trace the source as well as end use.
> The geographic diversity is huge and these assets tend to be spread over large tracts of remote rural areas and/or thickly populated urban slums which make it rather difficult to physically locate them.
> While many of the lenders ask for KYC documentation, it must be noted that what is provided is far from accurate. Therefore, it is very easy to show the same assets for different lenders and re-deploy the (surplus) funds in other activities, especially given the fact that different people can have the same names and initials in remote villages, whose names can also have been duplicated.{break}
All of these make supervision of micro-finance rather difficult as even establishing the identity of the micro-finance borrower and, hence, the loan asset is rather difficult. This is a very critical issue to be noted. Therefore, unless and until the supervisor has the presence and clout, especially at the local point of sale and collection, which all state governments have, it would be next to impossible to identify the real microfinance clients on the ground and provide them the necessary protection. Make no mistake about this.

Given this scenario, I am fully convinced that neither the RBI nor any other body (with peripheral presence in the states) can provide real protection to low-income microfinance consumers. Without any doubt, given the above physical and other special characteristics of microfinance, it is clear that only the state governments have the wherewithal to supervise microfinance locally and ensure protection on the ground in real time.

That said, let us hereafter try and look at who should supervise microfinance from the perspective of what any consumer protection legislation should do on the ground?

I think that all of us would agree that the focus of any consumer protection legislation must be on the relationship and interaction between a low-income customer and MFI/equivalent delivering various financial services. In broad terms, it must ensure that vulnerable (low-income) clients are not exploited and/or treated unfairly. Again, this calls for close monitoring of the MFI-client relationship and this again can be done only locally, either in the villages or urban slums. Again, this is an aspect that neither the RBI nor any other equivalent body will be able to accomplish effectively. This again is something that only the state governments can possibly do.

The case for state governments to supervise consumer protection in microfinance becomes even stronger when one considers the substantive features of any such consumer protection legislation. To be effective, any consumer protection legislation should ensure that MFIs provide low-income people (consumers) with:

  •  Transparent information - by providing full, plain, adequate and comparable information about the prices, terms and conditions (and inherent risks, if any for the new savings and mutual fund type products) of various microfinance products and services.
  •   Choice of products and services - by ensuring fair, non-fraudulent, non-coercive, legally valid and responsible/reasonable practices in the selling, advertising and marketing of microfinance products and services, and collection of payments, etc.
  •   Appropriate redressal mechanisms - by providing inexpensive and speedy mechanisms to address complaints and resolve disputes in a fair and transparent manner and especially at the local level.
  •  Privacy aspects - by ensuring control over access to personal financial information and its non-use for other (not-so-legal) purposes.

Now this requires local presence, especially at the point of sale and collection. Again, neither the RBI nor any other central institution can monitor this on a day-to-day basis, especially given the scale, remoteness and huge levels of decentralisation prevalent in the Indian microfinance business.

Therefore, the case for having state governments perform the supervisory role, especially with regard to consumer protection aspects, is very strong and cannot be dismissed. Using any other arrangement including regional/state level RBI offices, state level microfinance councils and/or offices of any other central supervisory institution is surely a recipe for disaster. Mark my words, if that were to happen, we will surely be facing a larger microfinance crisis in a few years to come and that is certainly a risk that we simply cannot afford to take.

i Mostly consumption loans and some small production loans
ii As an illustration, I use microfinance loans and the same logic can be derived for other kinds of products. Also, much of Indian microfinance has been really micro-credit.

(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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Nagesh KiniFCA

8 years ago

Yes, Mr. Arurnachalam is absolutely right in calling for a more effective local level supervision on the MFIs.
They have been doing a great job in accessing and funding the hitherto unpenetrated sector in rural india.
The outreach of the Regulator, the RBI is good enough, needs to be enhanced with a result oriented mechanism set up by their own DBOD and with the ICAI.

Establish standards for MFI independent directors as first step to ensure good corporate governance

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.) 

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Nagesh KiniFCA

8 years ago

The RBI appoints CAs as independent directors on the Boards of PSBs. In stead of appointing members with hard core banking exposure any one running CA coaching classes or IT or ST practice cannot in any way intellectually contribute to the discussions they are more of a liability or nuisance rather than an asset. independent is a sham it is their clout in the ICAI that works the wrong way. The post-scam Satyam/Mytas appointments are cases in point.

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