Ramesh S Arunachalam
Look at an SRO (Self Regulatory Organisation) like Micro-Finance Institution Network (MFIN), India. It has a range of functions and it is important that these are complementary and not potentially in conflict. What I am saying is that the performance of one function by MFIN should not even appear to limit and/or compromise, its ability to discharge the other functions (including its admittedly very important self-regulatory role). That is where the problem lies with what has been recommended by the Malegam Committee Report (MCR), which is under implementation. I explain why this is the case?
When a quasi (self) regulator like MFIN is involved in both, industry development and (self) regulatory functions, such as the supervision of MFIs on behalf of the regulator, it is likely to reduce the quasi regulator’s effectiveness in both functions and reduce public confidence in the institution. For these and other reasons, combing a development role with a quasi-regulatory and/or supervisory role should be avoided at all costs. There can be no two doubts with regard to this!
The effective and impartial regulation of the microfinance industry in the larger (public) interest can increase consumer confidence in the industry and contribute to its long-term development. This is a fact that cannot be disputed! However, MFIN’s function such as the development/promotion of the microfinance industry generates material conflicts, as has been observed through a number of cases which I have documented (Please see the following article - http://microfinance-in-india.blogspot.in/2011/10/has-mfin-one-of-self-regulatory-bodies.html
For example, whether MFIN will vigorously pursue non-compliance by some of its member MFIs (microfinance industry participants), and alert consumers to this noncompliance is a serious question that I continue to have after having visited Eastern UP, Bihar and Madhya Pradesh. What ever happened to the enquiries that were ordered by MFIN in the aftermath of the 2010 AP crisis?
In my humble opinion, MFIN’s ability to place end user clients before its member associations THEREFORE appears to be in serious doubt!
While vigorous pursuit of non compliance may have an adverse effect on the microfinance industry’s reputation in the short-run, it is indeed necessary to achieve a consumer safety objective and long term health of the microfinance industry. Why is that not being acknowledged globally? I have my reasons for the same and will talk about it in my next post!
Combining the functions of service delivery of industry development with enforcement of regulatory standards can also present conflicts, particularly when the same/related staff carry out both functions and report to the same decision-maker, and therefore should be avoided. This, I believe is the case at MFIN where the super-boss is the same person as is the board, which comprises mainly of member MFIs! With all due respect to the present CEO of MFIN, I am not raising a personal issue here but rather a substantive conflict of interest issue and it must be looked at in this manner!
One last caveat is in order! Whenever I have raised such substantive issues, people think I am attacking the microfinance Industry and its constituents in a personal manner. That is hugely unfair and untrue! Let me assure all of you that what I am saying is certainly leading the thought development process in setting the highest standards of Governance in the microfinance Industry globally. In fact, I have now received a lot of feedback on the fact that my live blogging during the AP crisis in 2010 and prior/subsequent writing have indeed contributed in some (small) measure to changing the microfinance Industry globally, for the better! That alone makes me happy! Thanks and Have a Nice Day!
Look at an SRO (Self Regulatory Organisation) like Micro-Finance Institution Network (MFIN), India. It has a range of functions and it is important that these are complementary and not potentially in conflict. What I am saying is that the performance of one function by MFIN should not even appear to limit and/or compromise, its ability to discharge the other functions (including its admittedly very important self-regulatory role). That is where the problem lies with what has been recommended by the Malegam Committee Report (MCR), which is under implementation. I explain why this is the case?
When a quasi (self) regulator like MFIN is involved in both, industry development and (self) regulatory functions, such as the supervision of MFIs on behalf of the regulator, it is likely to reduce the quasi regulator’s effectiveness in both functions and reduce public confidence in the institution. For these and other reasons, combing a development role with a quasi-regulatory and/or supervisory role should be avoided at all costs. There can be no two doubts with regard to this!
The effective and impartial regulation of the microfinance industry in the larger (public) interest can increase consumer confidence in the industry and contribute to its long-term development. This is a fact that cannot be disputed! However, MFIN’s function such as the development/promotion of the microfinance industry generates material conflicts, as has been observed through a number of cases which I have documented (Please see the following article - http://microfinance-in-india.blogspot.in/2011/10/has-mfin-one-of-self-regulatory-bodies.html
For example, whether MFIN will vigorously pursue non-compliance by some of its member MFIs (microfinance industry participants), and alert consumers to this noncompliance is a serious question that I continue to have after having visited Eastern UP, Bihar and Madhya Pradesh. What ever happened to the enquiries that were ordered by MFIN in the aftermath of the 2010 AP crisis?
In my humble opinion, MFIN’s ability to place end user clients before its member associations THEREFORE appears to be in serious doubt!
While vigorous pursuit of non compliance may have an adverse effect on the microfinance industry’s reputation in the short-run, it is indeed necessary to achieve a consumer safety objective and long term health of the microfinance industry. Why is that not being acknowledged globally? I have my reasons for the same and will talk about it in my next post!
Combining the functions of service delivery of industry development with enforcement of regulatory standards can also present conflicts, particularly when the same/related staff carry out both functions and report to the same decision-maker, and therefore should be avoided. This, I believe is the case at MFIN where the super-boss is the same person as is the board, which comprises mainly of member MFIs! With all due respect to the present CEO of MFIN, I am not raising a personal issue here but rather a substantive conflict of interest issue and it must be looked at in this manner!
One last caveat is in order! Whenever I have raised such substantive issues, people think I am attacking the microfinance Industry and its constituents in a personal manner. That is hugely unfair and untrue! Let me assure all of you that what I am saying is certainly leading the thought development process in setting the highest standards of Governance in the microfinance Industry globally. In fact, I have now received a lot of feedback on the fact that my live blogging during the AP crisis in 2010 and prior/subsequent writing have indeed contributed in some (small) measure to changing the microfinance Industry globally, for the better! That alone makes me happy! Thanks and Have a Nice Day!
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