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Theme - Issues and Challenges in Governance of microFinance Institutions (mFIs): Indian Experience

Theme - Issues and Challenges in Governance of

microFinance Institutions (mFIs): Indian Experience

Volume 7

Issue 2

December 2006

From the Editor's desk

Be it a corporate, government, or any other form of organization, governance leads to

equitable development. This is particularly true and important to the banking sector-

importantly the microfinance sector that provides financial and other social services to

the doorstep of the poor and illiterate.

Keeping this mind, this issue of the newsletter deals with theme- "Issues and Challenges in

Governance of microFinance Institutions (mFIs): Indian Experience". Ms. Shyamala

Gopinath, Deputy Governor, Reserve Bank of India (BRI) emphasizes on the challenges of

financial education. According to her the biggest challenge and obstacle for providing

financial education is that, it is difficult to motivate individuals while, motivation can only

brings individuals to financial education. According to her, the major challenges in India

are a) the lack of basic knowledge and awareness about the products and services

available from the Banks, b) the difficulty in addressing the issues such as transparency

and d) the difficulty of consumers in identifying and understanding the fine print information

which leads to information asymmetry between financial intermediary and the customer.

Aparna Vishwanatham & Himani Gupta have defined governance as the board and

executive processes and systems that enable the institution to identify the risks affecting

its performance and to manage them to achieve the promised returns to its various

stakeholders. They also argue that single most critical factor that will aid best governance

practices to emerge would be the evolution of a healthy and effective relationship

between the executive management and the Board

Mr. V. Satyamurti's article reviews the concept of governance in organizations that provide

financial services to the poor. He defined governance as a process, by which a board of

directors guides an organization in fulfilling its corporate vision, and mission and protects

the institution's assets. He also dwells with the function and elements of governance as

Contents

well and review the experience and learning in enhancing, facilitating the structures and

systems of governance using AIAMED's tool call "Board Self Assessment Tool -Cum -Training

Manual" which is based on five objectives- collective leadership for efficiency and

effectiveness, leadership for probity, leadership for responsibility, leadership that is

Inclusive Growth: Role of Financial

transparent and accountable and lastly; Leadership with focused intelligence.

Education

This issue also provides the gist of the Standards Quarterly Review meeting. The meeting

MFI Governance ­ At the Point of

deliberated on three broad areas - a) governance practices in the sector, b) expectation

Inflexion

from the sector and c) way forward: steps envisaged.

Finally, we hope that this issue of the newsletter will generate focused debate that would

The success seal to organizational

intern lead to institutional robustness and transparency.

governance in providing financial

services to the poor

Your feedback and contribution enable us to improve our work and disseminate to wider

readers of Patrika and take the microfinance movement forward to the next level for

inclusive growth in a sustainable way.

Sa-Dhan Standards Quarterly

Review

Mathew Titus

Published by Sa-Dhan Microfinance Resource Centre

12 & 13, MPTCD Building, 2nd Floor Special Institutional Area, Shaheed Jeet Singh Marg, New Delhi 110067

For private circulation only