Responsible Finance Forum

Governance Practices Among Microfinance Institutions in India

01 June 2015
Source:  MicroSave
 
 UKAid
 
 Small Industries Development Bank of India

Governance has assumed increasing importance in the Indian microfinance sector over the last few years. With the growth in portfolio and outreach of MFIs, intense competition and stricter regulations, the governance practices of MFIs needed to adapt quickly. Strong governance not only contributes to robust growth of the institution but also avoids the possibility of mission drift. There is a need for prudent corporate governance structure to prevent MFIs from committing the same mistakes they made earlier, which led to a crisis- like situation in the Indian microfinance industry in 2010.

In the light of this context, SIDBI’s PSIG programme wanted to assess the “as-is” status of key corporate governance models followed by Indian MFIs, boards’ roles and responsibilities, executive management and oversight, level of involvement in policy development, corporate oversight and strategic planning process and so on. Through the study, PSIG aims to highlight issues and gaps faced by Indian MFIs with specific reference to corporate governance and at the same time document best practices, if any. The study has the following three objectives:

  1. To scan the corporate governance models adopted by MFIs in India;
  2. To evaluate involvement of board;
  3. To analyse the current scenario, identify gaps and recommend actions.

About 60 MFIs were initially selected, based on criteria such as outreach, portfolio size, legal form, focus on PSIG states and geographical spread. However, only 42 of the 60 MFIs agreed to participate in the study. As part of the primary research, 24 out of the 42 MFIs were included. During the primary research phase, the team held discussions with the CEO and the senior management of the MFIs. The team also interviewed 21 board members and industry experts to understand their perspectives on corporate governance.