This note summarises the findings of a 3-month project by MicroSave India to clarify prospects for a sound business model for Banking Correspondent operators under the current regulations. The study analyses three diverse cases that involve differing institutional arrangements with business correspondents and strategies for sustainability; concluding that achieving profitable operations will remain challenging under the current regulatory environment.
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The Global Financial Crisis and Indian Microfinance
This note summaries the impact of current global financial crisis on Indian microfinance sector and analyses the response of various stakeholders. Note also suggests various risk mitigation strategies specifically for small and medium size MFIs to reduce their vulnerability to such economic shocks in future.
Internal Controls in Small/Medium MFIs
The note provides a practical approach, based on COSO framework, for small/ medium MFIs to put in place an effective internal control system. The functional areas that internal audit and control cover like: financial transactions, operations, adherence to mission, have a direct relationship with different types of risks for an MFI. For small and medium MFIs, managing these risks become more complex as systems are still evolving, processes are individual driven, procedures are sidelined, they face human resource constraints and affordability issues etc. It advocates that it is essential to have system of sound internal audit and control at every stage of institutional growth, though setting up such a system may appear complex and costly. There are innovative and cost effective ways though which such a system could be built based on the elements of proper internal control and ownership at all levels within the organisation.
Provisioning for Loan Impairment in MFIs
Maintaining adequate reserves to cushion against future loan losses has again been highlighted in the wake of recent financial crisis. This India Focus Note delves into the importance of this for the microfinance sector, highlights current challenges, and possible ways forward in provisioning for loan losses for Indian MFIs.
Village Financial Systems in Northeast India
Villagers in Lower Assam are pioneers on the frontiers of informal finance, according to the results of recent field work conducted by the Indian Institute of Bank Management. This note provides an overview of the village financial systems in Northeast India, highlighting the flexibility and the multiple needs met by these Accumulating Savings and Credit Associations (ASCA).
SHGs Should Balance or Break
India Focus Note 19 addresses the issue of the lack of audits of SHG balance sheets. It highlights the fact that Self-Help Group members are unable to use SHGs as a reliable source of savings because they cannot be sure that all their deposits are accounted for. Furthermore, it points out that without proper control systems, SHG savings are exposed to abuse. The authors argue that “Unless they balance annually, SHGs should break every 2-3 years by providing an unconditional cash-out opportunity (…) to all members.” This note also provides an array of management tools to SHGs and advice on what banks should do before lending to them