15

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

Transparency

Sustainable profits,

in operations

Reputation

=

=

performance

and good

and growth

governance

Expectations from the sector

client's availability and their consent in

any activities undertaken.

As far as sustainability of MFIs is

concerned, SHGs are still the basic

Way forward: Steps envisaged

stakeholders of the sector. The ultimate

aim of any client-based organization is

Client-focused governance should be

the satisfaction of clients and hence a

a part of the culture of the mFIs.

down-to-top approach should be

Facilitating self-evaluation by mFIs and

A proper data-

adopted by the organizations to better

learning the value-additions by strong

base has to be

serve the clients. The implementation of

governance mechanisms is important

maintained and

certain governance norms, be it in any

as well as a necessity. Educating the

co-ordination and

legal form of MFIs, should take into

clients and ensuring consciousness

good interaction

account both sides i.e. beneficiaries as

among them by making the system

among the

well as who is assisting beneficiaries

transparent can be an effective tool to

bankers is

(mFIs). If one tries to exploit the other,

avoid  over-lapping  among  the

significant for the

both will suffer. There should be a

borrowers. The struggle between the

sector to survive

balance between the survival of both

Government and mFIs would be

mFIs and the reduction of poverty as

continuous but at the same time both

well. Commercial banks should sit

can help from each other. Government

together and devise a uniform

never emphasizes on the recovery of

accounting system as well as reporting

loans from the clients. They consider

system for the mFIs. As our work requires

people as vote banks and change their

us to always deal with the government,

views as per the demand of time and

we need to constantly engage with

situation. So, sometimes they create

them. MFIs need not fear the step-

problem for the mFIs. The learning that

motherly attitudes of the government as

the mFIs have received from past crises

we have a proper value-system for

should be used for the benefit of the

which we are working in this sector.

whole sector as well as the poor clients.

Over-lapping by the clients must be

Professionals from various fields, bankers,

avoided.  Separate  accounting

etc. may constitute a panel to set

standards, proper rules of financial

standards in governance for MFIs. The

management (related to the cash-

funding agencies can undertake the

flow), basic management issues like

responsibility  of  monitoring  this

financial management and public

adherence by the concerned mFIs. The

relations management should be in

on going agenda of the panel should

place. Looking over the perspectives of

be  made  known  to  the  state

clients is of utmost importance. They

governments. Working hand-in-hand

should be properly educated regarding

with the government is a prerequisite.

the source from where they borrow, the

A proper data- base has to be

interest rates in which they borrow

maintained and co-ordination and

money, how much and when to repay.

good interaction among the bankers is

Sometimes mFIs do not make it clear at

significant for the sector to survive,

all. The systems followed by the mFIs

which is lacking now. Finally, the mFIs

should take into account what role it

should not be shy or afraid of projecting

plays to the clients. The clients should

themselves and should come up and

be benefited and happy at the end of

discuss with all possible stakeholders

the day. The mFIs should consider the

about what they are doing.

This is an excerpt from the first Standards Quarterly Review (SQR) organised

in October 2006