Professional Documents
Culture Documents
Commercial Micro Finance and Social Responsibility
Commercial Micro Finance and Social Responsibility
H
tional Finance Corporation and German
Working within the logic of aving started off as a community- agency KfW began to extend finance to MFIs
based solution to the problem of on a “near-commercial” basis. Supplement-
maximising investor returns, the ed by private foundations and “social” in-
access to financial services for the
strategic focus of Indian vestors, such funding encouraged MFIs to
poor, microfinance in India has travelled a operate with more commerciality and pro-
microfinance institutions seems long way in just about two decades since fessionalism. International commercial
to have shifted from serving the the early 1990s. The self-help group (SHG) banks made experimental investments dur-
ing this period, usually through their chari-
poor borrowers to chasing profits. model, organised around an informal set
table foundations. Financialisation of pure-
of norms of mutuality and trust, was the
The commercial transformation lending microcredit is now evident in a
earliest institutional form of microfinance range of financial technologies familiar
of MFIs has been accompanied by in the country. Ever since the institution- from mainstream capital markets: the crea-
changes in the structure of alisation of the SHGs in the early 1990s, tion of microfinance investment vehicles
(MIVs) and the use of securitisation, collat-
ownership, management and there have been some experiments
eralised debt obligations and structured fi-
around the methodology of group lend-
nature of their stakeholder nance, among other risk-management tools.
ing. The non-governmental organisa- Examples abound of credit wraps or guar-
commitment. This essay discusses tions (NGOs) which were seen as facilita- antees, loan syndications and hedging
some of the critical inadequacies tors in the SHG model have adapted the mechanisms. Specialised services, includ-
ing ratings agencies, support the industry.
in the approaches advocated and Grameen methodology of group lending
Substantial initial public offerings are be-
to directly engage in delivery of micro ginning to occur, pointing the way to “exit”
currently practised by the
loans; they are legally prohibited in India opportunities for private equity investors
commercial MFIs in order to from collecting public deposits. Some and increasing the allure of for-profit invest-
restore the sector’s focus on tried to work through cooperatives and ment (Conroy 2010: 2).
than 1.2 crore clients and portfolio out- 1 Social Responsibility of MFIs family size, the number of children
standing worth Rs 7,650 crore during It needs to be recognised that commerciali- attending school, the type of housing, etc,
September 2008. The top 10 MFIs (seven sation of microfinance has led to an with the help of staff members through
of which are NBFCs) account for 77% of increased interest among investors and client interviews. Each indicator is as-
the portfolio and 75% of the clients. Fur- practitioners in reasserting the social signed a score that reflects client response,
ther, about 62% of loan outstanding of developmental role of microfinance. Many and all 10 indicators receive a total score.
the 50 MFIs in 2008 was accounted for by efforts are on to develop tools and methods The field staff of the MFI matches the total
the top five NBFCs,2 which also claim 57% to assess the social performance of MFIs. points from the clients’ PPI to a poverty
of the total client outreach. The CRISIL Paradoxically, most such efforts are driven level estimate which helps in ranking indi-
data shows that during 2007-08, Spandana by investor interests to establish that in- vidual clients.3 The PPI, it is claimed, will
Sphoorty Financial, the second largest vestments have gone in to poverty-focused help the MFIs to (i) better define and
MFI in the country, increased its net profit and sustainable microfinance ventures adhere to their mission; (ii) increase their
by 1,700%, while Swayam Krishi Sangam rather than ascertaining how the services competitive edge, profitability, and ability
(SKS), the leader in the market, registered have had an impact on the livelihoods of to retain clients by responding more
a rise in net profit by 700%. the households they reached out to. The quickly and effectively to changes in their
Working within the logic of maximis- latter would require costly and cumber- communities and by showing documented
ing profit and investor returns, in its cur- some studies with elaborate research results; and (iii) to provide timely and
rent phase, the strategic focus of micro plans. The preference, hence, is for quick accurate information to socially responsi-
finance seems to have shifted from poor surveys with a minimum number of easily ble investors who may want to provide
borrowers to profits. Commercial trans- traceable indicators that can prove the pro- financial resources to their programmes.
formation of MFIs has been accompanied gramme’s outreach to the poor.
by changes in the structure of ownership, Client Protection Principles
control and management of MFIs and the Social Performance Reports The formulation of Client Protection Prin-
nature of their stakeholder commitment. The Social Performance Management ciples (CPP) marks another proactive
What are the implications of this rather (SPM) framework developed by the Imp- ef fort on the part of the industry, espe-
dramatic change for the sector’s assumed Act Consortium checks and validates the cially the investor community, “to ensure
ability to be responsible for and res closeness of fit between organisational that providers take steps to protect low-
ponsive to the communities that they mission, strategies and development out- income clients from potentially harmful
serve? As the conflict of interests and comes. The Consortium defined SPM as financial products and ensure that they
claims among clients, management and the process of translating mission into are treated fairly”. 4
investors become rampant, whose inter- practice, including setting social objec- The six core principles to which provid-
ests will assume primacy and determine tives, tracking social performance and ers are expected to adhere to are:
MFI strategies – the prescriptions and using information to improve practice. • Extend credit if borrowers have the
priorities of the financial market players The efforts of the Consortium are aimed ability to repay; avoid over-indebtedness.
or the needs, constraints and priorities at developing tools and methods that can • Pricing and terms and conditions of
of the ultimate users of microfinance be used by MFIs to pursue their social mis- financial products will be transparent and
services? What are the available safe- sion, if they have one, as part of a deliber- adequately disclosed.
guards that can save the sector from mov- ate and managed strategy. It is also be- • Debt collection practices will not be
ing farther away from serving its social lieved that MFIs will be more successful in abusive or coercive.
change agenda? achieving their social goals if they can • High ethical standards will be com-
The purpose of this essay is to explore measure, monitor, and manage their plied with by the staff while interacting
the apparent dilemma of commercial progress towards them, a practice they with clients.
microfinance with respect to serving the follow with respect to their financial • Timely and responsive mechanisms
poor and chasing profits. It discusses goals. Moreover, like private sector firms, will be in place for problem resolution and
some of the critical inadequacies within MFIs can benefit from strategies that allow dealing with complaints.
the approaches advocated and practised them to protect and enhance their reputa- • Privacy of individual client data will be
currently by the commercial micro tion; attract, motivate, and retain talent; respected.
finance entities to restore the sector’s manage and mitigate risk; improve opera- The signatories to the principles have
focus on poor borrowers. The essay also tional and cost efficiency; ensure licence proclaimed their commitment to a process
strives to unravel the social responsi to operate; develop new business opportu- to “translate the principles into standards,
bility of microfinance with the help of nities; and build stable and prosperous op- policies, and practices appropriate for dif-
illustrations from the contemporary erating environments (Seep Network 2008). ferent types of microfinance clients, pro
microfinance scenario in India and The Progress Out of Poverty Index (PPI) ducts, providers and country contexts”.
using conceptual insights derived from is a popular social performance tool CPP, however, appear more “pro-client”
the ex isting literature on business developed by the Grameen Foundation. It compared to the “Fair Practice code”
social responsibility. uses 10 locally relevant indicators such as showcased by some MFIs. The latter is the
Economic & Political Weekly EPW july 31, 2010 vol xlv no 31 33
PERSPECTIVES
articulation of the conditionalities that debates. In other words, they do not pro- pragmatic explanation: a stakeholder is
govern loan contracts to guard MFI interests. vide any guidelines to ensure that the or- one who has an “obligation-generating
The signatories undertake to consider the ganisational decisions are not influenced stake” in an organisation’s decision that
principle while making their investment by the “morality of the mighty”. results from the possibility of getting af-
decisions and extend support only to those fected by that decision or from a potential
who stand by them. 2 Clients of Microfinance risk. The concepts of stake (including non-
Social responsibility is intrinsically rooted financial stake) and risk help one focus
Self-Regulation in an entity’s commitment to the principle sharply on those entities with legitimate
Self-regulation can be seen as a way to of egalitarianism, an ideological commit- claims, irrespective of their power to in-
influence behaviour of firms and organisa- ment that coexists with individualism fluence the business firm.
tions by institutionalising a set of desired (Bobo 1991). Applied to the realm of busi- A close look at the current phase of
practices that will serve the collective in- ness, social responsibility entails business expansion of commercial microfinance
terests of all involved. Most recently, two responsiveness to societal issues and a urges one to examine the salience of differ-
institutions came up in India – Alpha motivation to go beyond economic, tech- ent stakeholders within the sector. Which
Micro Finance Consultants and Micro nical and legal obligations towards ensur- stakeholder(s) has all the attributes that
Finance Institutions Network (MFIN) – ing greater social well-being. In other guarantee the attention of the management
championed by the major NBFC-MFIs as words, it is an obligation to fulfil the of the MFIs – the clients, the promoters or
part of their ongoing efforts to promote societal demand in such a manner as “to the investors? How do organisations ad-
self-regulation among microfinance insti- safeguard the interests of those who deal dress the complexities involved in ethically
tutions, mainly, to avoid problems associ- with it either as employees or consumers incorporating multiple stakeholder con-
ated with over lending and delinquency. even if the proprietary rights of its owners cerns and priorities in routine manage-
Multiple agencies lending to the same cli- are thereby curtailed” (Dodd 1932: 1162 ment? Questions like these assume critical
ents has emerged as a worrisome tendency emphasis added). significance in any assessment of the capa-
in India, especially in states that have Who should businesses be responsible bility of Indian microfinance to be socially
witnessed high growth in the micro to while addressing the interests and responsive and responsible.
finance activity. It has also been observed claims of various groups? Many theorists An interesting attempt to answer these
that the regions that experienced high have made a significant contribution questions came from Mitchell, Agle and
penetration levels of microfinance also towards unpacking this dilemma through Wood (1997), who offered a framework to
have presented pockets (for instance, the concepts of stakeholding and stake- analyse stakeholder salience and identi
Kolar in Karnataka and Lucknow-Kanpur holder.5 Edward Freeman (1984, as quoted fication on the basis of three attributes:
belt in Uttar Pradesh) with serious repay- in Sternberg 1999: 46) defined stakehold- (i) power (to influence the firm decisions),
ment problems (Rozas and Sinha 2010). er rather broadly as any group or individu- (ii) legitimacy (of relationship with the
In this context, Alpha is designed as an al who can affect or is affected by the firm), and (iii) urgency (of claims on the
agency to help MFIs with credit bureau achievement of the organisation’s objec- firm).7 By examining the various combi
services, whereas MFIN has come up with tives. While tracing the history of the nations of these attributes, they classified
a “code of conduct” that urge MFIs to term, Freeman argues that the concept stakeholders into three broad classes
restrict themselves from over lending, was originally defined as “those groups (latent, expectant, and definitive) and
which, it is feared, would lead to instabi without whose support the organisation seven types (three possessing only one
lity of current growth (Mahajan and would cease to exist”. Such groups could attribute, three possessing two attributes,
Vasudevan 2010). include shareholders, consumers, users, and one possessing all three attributes)
Social responsibility of microfinance as neighbours, governments, suppliers, (Table 1).
interpreted within the SPM or CPP or self- creditors, and distributors.6 Donaldson The definitive stakeholders are the
regulation frameworks seems narrow in and Dunfee (2000) extended a more “mighty” ones in this scheme as they have
its scope. These frameworks are intrinsi-
cally incapable of addressing critical Table 1: Stakeholder Types by Attributes
aspects of questions related to power and Class Type Attribute Ability to Demand Attention from Management
dominance, which largely decides the ulti- Latent Dormant Power No or very little interaction with management
stakeholders Discretionary Legitimacy No incentive to interact and demand attention
mate distribution of benefits of any devel-
Demanding Urgency Irksome, but do not warrant attention of management
opment-oriented intervention. The norms
Expectant Dominant Power and Expect and receive attention, but not the full attention
and processes through which the organi- stakeholders legitimacy
sations arrive at their mission and strate- Dependent Urgency and Support of other stakeholders or guidance by internal
gies are taken for granted or ignored in all legitimacy management’s value needed
these. Questions pertaining to structure of Dangerous Urgency and power Potential risks to relationship with management and
other stakeholders
shareholding pattern and norms of profit
Definitive Definitive Power, legitimacy Receive clear and immediate attention to claims
sharing never figure as important con- stakeholders and urgency
cerns in social reports or self-regulation Source: Adapted from Mitchell, Agle and Wood (1997).
34 july 31, 2010 vol xlv no 31 EPW Economic & Political Weekly
PERSPECTIVES
power, legitimacy and urgency and hence, individuals, members or families. Para- sector and the second in the world after
their interests become managerial priori- doxically, the resources were largely do- the 2007 IPO of the Mexican MFI, Banco
ties. Within the class of expectant stake- nated by the MFIs themselves through Compartamos. The objective of the public
holders, both dominant and dangerous their non-profit parent entities. Thus, the issue is reported as raising about $225 mil-
stakeholders too can influence decision- MBTs subscribed to the equity shares of lion from the market, partly through new
making. However, the former lacks urgency the new companies with cash grants made issues and partly through sale of existing
and the latter, legitimacy. Dependent available to them by the MFIs. By doing stakes by private investors and employees.
stakeholders are peculiar in that they this the new companies could also con- Post the issue, about 23.3% of the equity
have urgent and legitimate claims, but no veniently circumvent the legal hassles re- shares will go to the public (DRHP 2010). It
power. In the transition from expectant to lated to non-profit societies or trusts mak- is reported that despite having a very
definitive stakeholder, this is the type that ing investments in profit-making compa- healthy capital adequacy ratio of around
tends to lose out unless deliberate efforts nies at the time of incorporation. 24% (as against the Reserve Bank of India
are made to “empower” them. The cate The later developments, however, indi- stipulation of 12%), SKS chose to go public
gories of dormant and discretionary cate the promoters’ hidden intention to to help investors exit and employees en-
stakeholders receive the least attention as progressively dilute the community stake cash their equity options (Economic Times
per the above scheme. They are neither by bringing in external investors. This was 2010). That some members of the top man-
counted nor consulted while managerial done systematically by all the top ranking agement team have already sold their
decisions are made. microfinance companies. For instance, in stake to Tree Line Asia Master Fund, a
In an overtly commercial microfinance the case of Asmitha Microfin (established Singapore-based hedge fund, is also seen
industry, the poor, at best, are dependent in 2002 and headquartered in Hydera- as raising questions about the commit-
stakeholders who lack the power to stake bad), which transformed into a company ment of the company to serving its poor
their urgent and legitimate claims on the with more than 97% of the shares “owned” borrowers8 and about the company’s
resources of the MFI and build their capa- by the clients; the promoters and their claim that the IPO is its way to raise money
bilities. Management and leadership may relatives acquired majority stake in the to grow the business to reach out to 50
recognise their needs as urgent and legiti- company through a buyout in 2006. From lakh clients.9 How much of the gains from
mate, but conceding them the power to 2006 onwards the company also started the IPO go back into building the portfolio
steer strategic decisions (with respect to distributing dividend. In 2008, the of the company is not certain yet.
targeting, products, lending policies, shar- managing director of Asmitha was offered All the MFIs that we have discussed
ing of profits) is near to impossible, given sweat equity worth $2.5 million by one of above have been hailed as commercial
the singularly profit-centred economic the equity investors. successes within the ever-burgeoning in-
calculus. The graver concern is whether in The tendency towards cross holding of vestor community, as they help increase
a scenario where new forms of domina- shares and interlocking directorship is shareholder value in the least possible
tion emerge (like profit-oriented inves- another disturbing feature of the current time. No one questions the misuse of the
tors, professionals with superior skills and phase of microfinance commercialisation. powerless client communities as just a
sophistication), clients’ position would Based on an analysis of the recent history stepping stone to the world of profits.
erode further to make them latent or even of shareholding pattern and financial Also neglected is another question – a
non-salient stakeholders. transactions of Asmitha Microfin and more pertinent one – as to whether
Share Microfin – two companies promot- there has been an increase in the social
In Whose Interest? ed by the same family, Sriram, in a recent and economic value that a poor house-
The uncomfortable prospect of using paper (2010) concluded that there is clear hold expects to gain by participating in
clients as sheer instruments to build pro- evidence of “above the line skimming of the microfinance programme and by
moter profits is visible in several instances profits” in both the companies. This has investing its already overstretched and
in the recent history of microfinance been achieved through systematic undervalued resources like time, effort
growth in India. Many of the current lead- increase in the shareholding of the chief and trust.
ing for-profit microfinance entities – SKS, promoters and drastic reduction in equity
Spandana Sphoorty, Share Microfin and held by community collectives as also by A For-Profit Model with
Asmitha Microfin – started off their com- overvaluing the promoter contribution in Client Ownership
mercial transformation with predominant terms of salaries and sweat equity shares. There are a few instances, however, where
“community ownership” which took the The contradiction that underlies a organisations have tried out innovative
same form of creating mutual benefit “profit maximising poverty alleviation frameworks to assert the primacy of
trusts (MBT) of borrower groups, pooling strategy” became acute when SKS, the microfinance clients. Sarvodaya Nano
their resources and making them invest largest microfinance company in India, Finance (SNFL) is a case in point. The
in the new company. It may be noted that announced its intention to go public in SNFL was established in the late 1990s by
an MBT is a form of trust where the entity late 2009. The initial public offer (IPO) is the Association for Sarva Seva Farms
is created not for the larger public good, likely to materialise in July 2010. This is (ASSEFA), a community-centric Gandhian
but to control the benefits accruing to the first IPO in the Indian microfinance NGO founded in 1979. The operational
Economic & Political Weekly EPW july 31, 2010 vol xlv no 31 35
PERSPECTIVES
principles of ASSEFA are guided by the for internal lending, and thus developed a that bind social and economic entities into
belief that “The assets generated out of sense of ownership over it. moral communities and provide them
the grants received by ASSEFA were to be The SNFL example vividly demonstrates with a moral framework for engaging in
owned by the communities. Even benefits the possibility of designing for-profit- economic activities (Donaldson and
that were targeted at individuals were microfinance models that can strategically Dunfee 1994 and 2000). It is a site where
given as a soft loan to be contributed back position clients as the primary and defini- the diverse interests of multiple stake
to the community organisation, so that tive stakeholders and promote maximisa- holders are negotiated (which reflect their
those resources could in turn be used for a tion of client/community value (defined in relative moral universes) and evaluated
larger good of the other members of the terms of the accumulated social, econom- against certain ethical values. In the case
community. …Similarly it was also envis- ic and political benefits that accrue to of microfinance – a sector, which, by its
aged that not only the assets would be individual members and communities) as very definition is focused on improving
owned by the communities, but institu- the long-term objective, as against profit the living conditions of the poor – a social
tions set up for their benefit would also be maximisation of individual shareholders. contract is expected to assert the salience
ultimately owned by them” (Pathak and Compared to the profit-driven companies of the poor by incorporating terms that
Sriram 2004: 1). with substantial private equity participa- grant them power and legitimacy while
Though ASSEFA was involved in SHG tion, SNFL’s performance has been totally addressing their claims.
promotion in Tamil Nadu since the late lacklustre. As against 1,700% and 700% A typical macro social contract is a com-
1980s, even by the mid-1990s a large pro- growth rate in net profits of Spandana bination of many micro social contracts
portion – close to 40% – of their groups Sphoorty Financial and SKS respectively, involving different stakeholder communi-
could not access adequate and timely SNFL registered a very modest growth rate ties. As Sacconi (2004) argues, apart from
external credit to enhance livelihood of 19% during 2007-08 (CRISIL 2009). But ensuring avoidance of force, fraud and
activities. Pooling SHGs’ own funds for as we discussed earlier, SNFL has one of manipulation, a social contract allows the
circulation was difficult as they lay scat- the most client-salient ownership struc- different parties involved to negotiate
tered across different areas of the state. tures among the microfinance companies. on the basis of the capacity of each to
Equally difficult was establishing sus- Clearly, assessing the social responsibil- contribute and assess the utility of each
tained bank linkage for the groups. The ity of MFIs in the current scenario is a com- agreement/non agreement. With the
other feasible option was to set up a finan- plex process. It definitely goes beyond help of a social contract, each stakeholder
cial institution which could leverage counting the number of poor clients on can make sure that it derives at least the
external funds, but which was owned by the rolls of an MFI, and includes a closer reimbursement of the cost of specific
the community. It was first set up as a fully scrutiny of business decisions and mani- investment it makes towards surplus
owned company within the BASIX Group fest interests of promoters and sharehold- generation. For the MFIs, the costs would
based in Hyderabad. After a couple of ers. It also involves systematic and pains- involve the actual costs of intermedia
years of dormancy, ASSEFA chose to taking evaluation of how the poor borrow- tion, while for the clients the costs can
change the ownership structure with ers deal with and gain from their associa- include widely-varying components such
block level Sarvodaya MBTs (of which tion with MFIs. as the opportunity cost of engaging
SHGs are members) as shareholders. The A fruitful way to ascertain the social with the MFI, the social cost of snapping
MBTs are permitted by their bye-laws to responsibility of MFIs seems to be to the long-standing relationship with the
raise external resources for meeting the examine the nature of its underlying traditional credit sources as also of
credit needs of the SHGs and also to invest social contract. Social contracts are the taking time out from the socially expected
in shares of other corporate entities. informal, implicit, but critical agreements roles (in the case of women, especially)
Each SHG paid a one time non-refundable
contribution of Rs 1,000 and contributed
to the MBT an amount equivalent to the
capital development fund and other
revolving funds given by ASSEFA (Pathak
and Sriram 2004). The structure thus
emerged had a clearly defined direction of
linkage between the community (repre-
sented by individuals, SHGs, SHG Federa-
tions and MBTs at different levels) and the
company. It may be seen that even in the
case of SNFL, the stake of the community
was not real as a significant part of it came
from grant funds given by the parent NGO.
But as Pathak and Sriram (2004) observe,
the SHGs did receive the funds, used them
36 july 31, 2010 vol xlv no 31 EPW Economic & Political Weekly
PERSPECTIVES
to attend group meetings and unremuner- tracking client level impact are central to Dodd, Merrick E, Jr (1932): “For Whom Are Corporate
Managers Trustees?”, Harvard Law Review, XLV
ated responsibilities. being socially responsible. (7), pp 1145-63.
Donaldson, Thomas and Thomas W Dunfee (1994):
Conclusions Notes “Toward a Unified Conception of Business Ethics:
Integrative Social Contracts Theory”, The Academy
Microfinance, no doubt, is a distinct insti- 1 Since 1995 the Andhra Pradesh government has of Management Review, 19 (2), 252-84.
been playing a central role in promoting SHGs – (2000): Ties That Bind: A Social Contracts
tutional arrangement that blends the and linking them with banks as part of their Approach to Business Ethics (Boston, MA: Harvard
social and the economic, where resources poverty alleviation programme. As on March Business School Press).
2006, for every 1,000 households in the state,
are applied in clear pursuit of the simulta- 279 were part of SHGs (Fouillet and Augsburg
Draft Red Herring Prospects (2010): “SKS Micro
finance Limited”, 25 March.
neous creation of both economic and 2007). Launched formally in 1999, the Kudum-
Fouillet, Cyril and Britta Augsburg (2007): “The
basree programme, the poverty eradication mis-
social values. However, as we have argued sion of the Kerala government, uses the method-
Spread of the Self-help Group Bank Linkage Pro-
gramme in India”. Available at papers.ssrn.com/
in this essay, there is an apprehension that ology of women’s neighbourhood groups or
sol3/papers.cfm?abstract_id=1285783 (retrieved
NHGs. By 2008-09, 500 in every 1,000 house-
commercialisation, patronised largely by holds were reported as participants of the pro-
10 January 2009).
the traditional finance capital that seeks gramme. See Annual Administration Report Freeman, R Edward and John McVea (2001): “A Stake-
2008-09 of Kudumbasree. Similarly, “Mission holder Approach to Strategic Management”,
to maximise financial returns and facili- Shakti”, the self-help movement in the eastern Working Paper No 01-02, Darden Graduate
tated by “financial technologies familiar state of Orissa (started in 2001) claims participa- School of Business Administration, University of
tion of close to four million women. See http:// Virginia. Available at http://papers.ssrn.com/pa-
from the mainstream capital markets” www.wcdorissa.gov.in/. This accounts for about per.taf?abstract_id=263511 (retrieved 23 March
(Conroy 2010), would eventually under- 30% of the adult women population (above 15 2009).
years of age) in the state. Government of Kerala (2009): Annual Administration
mine the social value creation role of the Report 2008-09, State Poverty Eradication Mis-
2 These comprise SKS Microfinance, Spandana
MFIs. This apprehension is justifiably Sphoorty Financial, Share Microfin, Asmitha Mi- sion, Thiruvananthapuram.
crofin and Shri Kshetra Dharmasthala Rural De- Kumar, Vikash and Daniel Rozas (2010): “SKS Microfi-
founded on the observed trends in the cur- nance Journey to IPO: An Inside Story”, Microfi-
velopment Project. The first four are NBFCs and
rent phase of development of the Indian the fifth is a trust. nance Focus, 17 May, available at www.microfi-
3 See http://www.progressoutofpoverty.org/under nancefocus.com (retrieved 29 May 2010).
microfinance sector, which includes the Mahajan, Vijay and P N Vasudevan (2010): “Microfi-
standing-the-progress-out-poverty-index for details.
rise of a class of profit-seeking micro 4 See http://www.cgap.org/p/site/c/template.rc/ nance in India: Twin Steps towards Self-Regula-
tion”, Microfinance Focus, 10 January, available at
finance promoters, the progressive mar- 1.26.3701 or www.centreforfinancialinclusion.org.
www.microfinancefocus.com (retrieved 12 Janu-
5 Having originated in the mid-1980s with the
ginalisation of the poor microfinance publication of Edward Freeman’s work, The
ary 2010).
clients, and the increasing influence of Strategic Management: A Stakeholder Approach, Mitchell, Ronald K, Bradley R Agle and Dona J Wood
stakeholder theory has evolved into an integral (1997): “Toward a Theory of Stakeholder Identifi-
investor interests in the governance and part of strategic management. For an interesting cation and Salience: Defining the Principles of
management of transformed MFIs. Added discussion on the evolution of stakeholder theo- Who and What Really Counts”, The Academy of
ries, see Freeman and McVea (2001), available at Management Review, 22 (4), pp 853-86.
to this is the fear that unbridled growth http://p apers.ssrn.com/paper.taf?abstract_ Pathak Akhileshwar and M S Sriram (2004): “Com-
and over-lending may land the industry in id=263511. munity at the Core: A Study of Sarvodaya Nano
6 Some of the broad definitions of stakeholders are Finance Limited”, WP 2004-10-04, Indian Insti-
a delinquency crisis in the near future. tute of Management, Ahmedabad.
provided by Alkhafaji (“groups to whom the cor-
Though not reported by the mainstream poration is responsible”) and Thompson, Wartick Reserve Bank of India (2009): Handbook of Statistics
and Smith (groups “in relationship with an on Indian Economy, available at http://rbi.org.in/
media or publicised by the lending organi- scripts/AnnualPublications.aspx?head=Handbook%
organisation”). These are cited in Mitchell, Agle
sations, MFIs in some pockets have ex and Wood (1997). 20of%20Statistics%20on%20Indian%20Economy
perienced client indifference and non- 7 Mitchell, Agle and Wood (1997) have presented Rozas, Daniel and Sanjay Sinha (2010): “Avoiding a
an exhaustive list of stakeholder classes while Microfinance Bubble in India: Is Self-Regulation
cooperation and resultant repayment cri- trying to model stakeholder identification and the Answer?”, Microfinance Focus, 10 January.
sis in recent times. Not all of them lack in salience. These are owners and non-owners of the Available at www.microfinancefocus.com (re-
firm; owners of capital or owners of less tangible trieved 12 January 2010).
managerial expertise or professional assets; actors or those acted upon; those existing Sacconi, Lorenzo (2004): “Corporate Social Responsi-
support. But they surely lack the vision in a voluntary or an involuntary relationship bility (CSR) as a Model of ‘Extended’ Corporate
with the firm; rights-holders, contractors, or mor- Governance: An Explanation Based on the Eco-
that clients form the primary constituent al claimants; resource providers to or dependents nomic Theories of Social Contract, Reputation
of microfinance. of the firm; risk-takers or influencers; and legal and Reciprocal Conformism”, Liuc Papers n. 142,
principals to whom agent-managers bear a fidu Serie Etica, Diritto ed Economia 10, suppl. a
While concerted efforts are needed to ciary duty. febbraio, available at http://papers.ssrn.com/
put the “social” back into the social enter- 8 See Kavaljit Singh’s letter to the Economic & sol3/papers.cfm?abstract_id=514522 (retrieved
Political Weekly. 16 June 2008).
prise called microfinance, we need to go 9 Some reports quoting personal sources say that Sriram, M S (2010): “Commercialisation of Micro
beyond techniques and tools that can the funds generated from the sale of MBT stake finance in India: A Discussion on the Emperor’s
will form a major infusion of capital for the MBTs Apparel”, Working Paper No 2010-03-04, Indian
ensure patronage of investors and fund and be directed to the SKS Society, the parent Institute of Ahmedabad.
providers, but do not always signal the NGO. See Kumar and Rozas (2010). Sternberg, Elaine (1999): “The Stakeholder Concept:
real development outcomes. In order for A Mistaken Doctrine”, Issue Paper No 4, Founda-
tion for Business Responsibilities, London.
MFIs and programmes to achieve those References The Seep Network Social Performance Working Group
outcomes, they need to clarify and (2008): Social Performance Map (Washington DC:
Bobo, Lawrence (1991): “Social Responsibility, Indi-
The Seep Network).
endorse their responsibility and respon- vidualism and Redistributive Policies”, Socio
Singh, Kavaljit (2010): “Microfinance: Profiting from
logical Forum, 6 (1), pp 71-92.
siveness towards the communities whose the Poor”, Economic & Political Weekly, 45 (18),
Conroy (2010): “Microcredit as a Variant form of Sub- 1 May, pp 4-5.
future they are trying to shape. Meaning- Prime Lending”, FDC Briefing Note No 10, May, Economic Times (2010): “SKS Microfinance May Hit
ful social contracts formed through inclu- The Foundation for Development Cooperation, Street with Rs 1,000-cr IPO”, 15 March, available
Queensland. at http://economictimes.indiatimes.com/mar-
sive processes and based on trust and CRISIL (2009): India – Top 50 Microfinance Institu- kets/ipos/SKS-Microfinance-may-hit-Street-with-
reciprocity as also consistent efforts at tions, CRISIL Ratings, Mumbai, October. Rs-1000-cr-IPO-/articleshow/5684162.cms.
Economic & Political Weekly EPW july 31, 2010 vol xlv no 31 37