Viewing all posts with tag: Corruption  

Savings Crisis in West Bengal

In the past few weeks, the local government of West Bengal has been embroiled in a financial and political crisis that has potentially large impacts on the state’s poor and its MFIs.  After discovering that the commercial entity the Saradha Group had duped thousands of investors through a real estate Ponzi scheme, the state minister launched a full investigation of over 70 other deposit-taking entities which are grouped under the category of “chit funds.”

A chit fund is a ROSCA-meets-the-auction block style of Indian savings scheme in which subscribers pool money every month and then try to outbid each other to get the entire pot.  The difference between the lowest bid and what is left in the pool is distributed among members.  In West Bengal, chit funds are particularly important due to the high demand for products that accommodate small savings.  According to Abhijit Banerjee and Maitreesh Ghatak, West Bengal’s share of population was approximately 7.5% in 2011, its state domestic product was 6.7% of India’s GDP, but its share of bank deposits was 22%.  Many of the state’s poor cannot afford to open a bank account and those who can face plummeting interest rates.  Chit funds can offer an alternative to traditional savings and credit lines for the unbanked . . . 

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Thinking Seriously About Governance

The heated debate about non-profit and for-profit microfinance institutions stretches back for years. It’s truly time to put that debate to rest—not because it has been resolved but because it is limiting a more important conversation about proper governance arrangements for microfinance: the question of who oversees management and in what manner.

The idea that for-profit or non-profit status is determinative in the future course of a firm, what customers it serves and how is so overly simplistic as to be laughable. There are responsible and corrupt for-profit organizations and responsible and corrupt non-profit organizations. What determines the course an organization takes over the long term—whether it hews to a vision of serving the poor or pursues profit above all else, whether it flexibly adjusts to changes in markets and contexts or becomes hidebound and irrelevant, whether it maintains a commitment to a long term vision or shifts like the wind with fads of the day—comes down to the governance arrangements that are put in place after the choice of profit status . . . 

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