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No beating about the bush.
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)