MICROCAPITAL BRIEF: Lokesh Kumar Singh of Sanchetna Financial Services on Corporate Governance in the Indian Microfinance Industry

Lokesh Kumar Singh, Managing Partner at Indian microfinance institution (MFI) Sanchetna Financial Services, recently wrote an article on corporate governance in the Indian microfinance industry that appeared on the India Microfinance Business News website.

The author commented on six areas:
1. Ownership structure: Mr Singh argues that founders of MFIs mostly enjoy ‘unchecked powers’over daily operations

2. Independent Directors: The author claims that in some nonprofits, some independent directors do not demonstrate sufficient knowledge about the industry.

3. Pricing: It was argued that there is a significant number of hidden charges designed to obscure from consumers the high cost of microfinance.

4. Audit Reports: Audit reports are usually not standardized and thus could potentially mislead investors or other interested parties

5. Grants and Donations: Mr Singh argues that MFIs rarely forgo subsidies from donors and grants and that many for-profit MFIs continue to have a grant funding structure even after they nominally move away from their nonprofit business models.

6. Salary Structure: The article described field staff as ‘poorly paid’, although the author indicates that top-level management receives generous pay.

Mr Singh contends that there is significant room for improvement for the corporate governance of Indian MFIs. In particular, he expects attention from foreign investors and private equity firms to help improve transparency and management practices.

Of the Indian MFIs reporting to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, as of 2009, the industry has a gross loan portfolio of USD 3.7 billion, total assets of USD 4.6 billion and 26.4 million active borrowers.

About Sanchetna Financial Services:
Sanchetna Financial Services is a microfinance institution (MFI) in Lucknow, India. It provides retail financial services, wholesale lending to microfinance institutions and business development services. The organization was founded in June 2008, and field operations started in October 2008 in Barabanki, Uttar Pradesh. According to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, the company has a gross loan portfolio of approximately USD 459,000, total assets of approximately USD 596,000 and 4,233 active borrowers as of 2009.

By Trevor Kwong, Research Assistant

Sources and Additional Resources:
[1] Source Article: India Microfinance News: Corporate Governance in the Indian Microfinance Sector:
http://indiamicrofinance.com/corporate-governance-indian-microfinance-98792.html

[2] MicroCapital Universe: Sanchetna Financial Services:
https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Sanchetna+Financial+Services

[3] Microfinance Information Exchange (MIX): India:
http://www.mixmarket.org/mfi/country/India

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