MICROCAPITAL BRIEF: Microfinance Institutions Network (MFIN) of India to Investigate Claims of Improper Handling of Mutual Benefit Trusts (MBTs) by SKS Microfinance, SHARE Microfin and Spandana Sphoorty

The Microfinance Institutions Network (MFIN), a trade association of Indian microfinance lenders, has set up a committee to investigate claims that SKS Microfinance, a for-profit microfinance institution (MFI); SHARE Microfin, a regulated non-banking finance company (NBFC); and Spandana Sphoorty, another for-profit MFI, took advantage of clients through the use of mutual benefit trusts (MBTs) to converting the institutions into for-profit entities.

The claims, made by The Economic Times, a news source in India, allege that the three Hyderabad-based microfinance outfits distributed donations from philanthropists to borrowers for the purpose of buying shares in the organizations. The borrowers—now shareholders—were then organized into MTBs and became majority shareholders in each outfit. As the companies grew and sold more shares, however, the three organizations allegedly did not distribute earnings to members of the MTBs properly. The Economic Times report questions whether the three organizations used the MTBs to meet capital requirements to attempt to transform from nongovernment organizations (NGOs) into for-profit entities rather than to benefit its borrowers.

The committee has 30 days to draft its report, and, if found guilty of any of the alleged charges, the three organizations could be expelled from MFIN, of which all three are members. The committee is also expected to draft guidelines governing the future use of MTBs by MFIN members [1,2,3].

By John Howard-Smith, Research Associate

About Microfinance Institutions Network (MFIN): The Microfinance Institutions Network (MFIN) is a trade association of Indian microfinance lenders, presided over by Vijay Mahajan, who is also the Chairman of BASIX, a microfinance institution (MFI) based in Hyderabad. MFIN consists of 39 non-banking finance company-MFIs (NBFC-MFIs) in India, which reportedly account for more than 80 percent of the Indian market. MFIN is supported by Omidyar Network, a philanthropic investment firm, and the International Finance Corporation (IFC), a member of the World Bank Group.

About SKS Microfinance: SKS Microfinance is a microfinance institution (MFI), launched in 1998, that delivers microfinance products through a group-lending model to impoverished women in India. It is a for-profit, non-banking finance company, which converted to a public limited company in May 2009 and launched an initial public offering on July 28, 2010. Equity investors include Quantum Hedge Fund, Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus. As of March 31, 2010, SKS Microfinance Private Limited reports to the Microfinance Information Exchange (MIX), the microfinance information clearinghouse, total assets of USD 897 million, a gross loan portfolio of USD 653 million, a return on assets of 4.96 percent, a return on equity of 21.6 percent and 5.79 million active borrowers.

About SHARE Microfin: SHARE Microfin Limited is a microfinance institution (MFI) based in Hyderabad, India. It began operations in 1989 as a nonprofit. It converted into a non-bank financial institution in 2000. It offers loans—primarily to women—as well as training and consulting to microentrepreneurs. As of March 31, 2010, it has USD 577 million in assets, a gross loan portfolio of USD 490 million, 990 branches, 2.3 million active borrowers, a return on assets of 5.50 percent and return on equity of 45.2 percent.

About Spandana Sphoorty Financial Limited: Spandana Sphoorty Financial Limited provides microcredit and “credit-plus” services to low-income households in India. The company was founded by Padmaja Reddy in 1998 and receives its funding from development finance institutions and banks. As of year-end 2009 Spandana had a gross loan portfolio of USD 787 million, 3.7 million borrowers, return on assets (ROA) of 8.99 percent and return on equity (ROE) of 55.7 percent.

[1] The Economic Times: “MFIN forms panel to probe MFIs”, http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/finance/mfin-forms-panel-to-probe-mfis/articleshow/7422191.cms

[2] The Economic Times: “SKS Microfinance: Promoters got the better of poor women borrowers”, http://economictimes.indiatimes.com/opinion/comments–analysis/sks-microfinance-promoters-got-the-better-of-poor-women-borrowers/articleshow/7396927.cms

[3] The Economic Times: “Spandana Sphoorty: Poor women ownership vanished in 3 years”, http://economictimes.indiatimes.com/opinion/comments–analysis/spandana-sphoorty-poor-women-ownership-vanished-in-3-years/articleshow/7396916.cms

MicroCapital.org story, January 25, 2011: “MICROCAPITAL BRIEF: Microfinance Under Scrutiny – Arguments For and Against From the Daily Star of Bangladesh and Forbes Magazine”, https://www.microcapital.org/microcapital-brief-microfinance-under-scrutiny-arguments-for-and-against-from-the-daily-star-of-bangladesh-and-forbes-magazine/

MicroCapital.org story, July 6, 2010: “MICROCAPITAL BRIEF: Microfinance Institutions Network (MFIN) Aims to Increase Accountability in India with Appointment of Ombudsmen”, https://www.microcapital.org/microcapital-brief-microfinance-institutions-network-mfin-aims-to-increase-accountability-in-india-with-appointment-of-ombudsmen/

MicroCapital’s Microfinance Universe profile: Microfinance Institution Network (MFIN), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+Institutions+Network+(MFIN)

MicroCapital’s Microfinance Universe profile: SKS Microfinance, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SKS+Microfinance

MicroCapital’s Microfinance Universe profile: SHARE Microfin Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=SHARE+Microfin+Limited

MicroCapital’s Microfinance Universe profile: Spandana Sphoorty Financial Limited, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Spandana+Sphoorty+Financial+Ltd

Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/

Similar Posts: