Microfinance institutions (MFIs) on Tuesday shrugged off the decision by SKS Microfinance on Monday to summarily sack Chief Executive Officer and Managing Director Suresh Gurumani. But a quiet change could soon take place in the sector, making such actions by promoters more difficult in the future.
In a move aimed at improving corporate governance and transparency, MFIs are looking to reorganise senior management by bringing in more independent directors and reconstituting the board to change decision-making at the top.
Share Microfin Ltd, for instance, is likely to see a reconstitution of its board next week. One of the oldest MFIs in the country, it is also planning to appoint three senior-level positions: chief executive officer, chief operating officer and chief financial officer.
Share might also appoint more independent directors, in addition to the existing two out of five. The buzz is that Share might merge with sister firm Asmitha Microfin, thus creating the second-largest MFI in the country.
Private equity fund Legatum Ventures owns 62 per cent in Share, while social rural venture capital firm Aavishkaar has a 5 per cent stake. The two invested Rs 100 crore in the MFI in 2007. Last year, Asmitha closed its second round of equity infusion with BlueOrchard Private Equity Fund pumping in Rs 50 crore.
Bandhan, one of the largest MFIs in the country, has an eight-member board with four independent directors. It is planning to recruit one more independent director, said Bandhan founder Chandra Sekhar Ghosh. He believes more independent directors will bring about greater transparency. “One should not generalise the industry after the SKS episode. The working of MFIs is gradually becoming more transparent,” said Ghosh.
According to a source close to SKS, SKS founder Vikram Akula and Gurumani had been locked in a power conflict for quite some time, and the decision to terminate the latter’s services was held up because of the company’s IPO. SKS has not yet attributed a reason for the sacking of Gurumani, who had more than 20 years’ experience with Barclays PLC and Standard Chartered Bank, among others. However, SKS did clarify that it was not due to any financial irregularity.
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“MFIs are putting in a lot of effort to achieve higher standards of corporate governance. While independent directors do not have a say in day-to-day affairs, they guide the company as a whole,” said Share founder Udaia Kumar.
Bandhan recently roped in a former executive director of IBDI Bank and a former chairman of Nabard as independent directors. It is planning to appoint Madhavi Lal, regional human resources head for India and South Asia at Standard Chartered Bank, as another independent director, said Ghosh.
Bandhan is also looking for a Rs 100-crore equity investment this year. It is the fourth-largest MFI, with outstanding loans of around Rs 1,700 crore, and profits of Rs 70 crore last year. Last year, Sidbi invested Rs 50 crore in Bandhan to pick up a 10 per cent stake.
“MFIs are moving from being promoter-controlled companies to board-driven companies,” said Shubankar Sengupta, managing director at Arohan Financial Services.
Yet, according to analysts tracking the sector, even though MFIs are seeking more independent directors on their boards, these directors have little say in major decisions taken by the company.
“The real power often vests with the promoters, and even shareholder-directors don't have much say,” said Narandra Prasad, an analyst and consultant for MFIs, and former employee of Spandana.