International Journal of Business Ethics in Developing Economies

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

A Case Study on the Ethical Issues in MFIS


Affiliations
1 Assistant Professor, VGSOM, IIT Kharagpur, Kharagpur, India
2 Research Fellow, VGSOM, IIT Kharagpur Kharagpur, India
     

   Subscribe/Renew Journal


Presently, many micro financial institutions (MFIs) are moving towards the market and are exposing themselves to a cutthroat competition in the name of lending to the poor. In the process they have started chasing targets and numbers. It seems that the social and developmental considerations, which have traditionally motivated microfinance, may have lost their importance as some MFIs have become radically commercial (Sriram, 2010). There are certain costs and benefits associated when a Microfinance NGO transforms to a Non-Bank Financial Company (NBFC). The charge against these MFIs who are transforming into NBFCs and now aspiring to make an initial public offering (IPO) is that they are enriching themselves and their shareholders at the cost of poor people. Therefore, this commercial success of microfinance sparks a eyebrow raising question of whether microfinance actually lead to sustainable development or are the MFIs drifting from the second objective of being socially sustainable in order to fulfill the first objective i.e. being financially viable. In our study we have taken account of the MFIs which are transforming into NBFCs and studied their mode of operation. Our study highlights the money laundering practices, sustainable investment or corporate governance issues, role of stakeholders in the process of transformation and discusses them from various ethical perspectives.

Keywords

Microfinance, Business Ethics, Triple Bottom Line, Sustainability
Subscription Login to verify subscription
User
Notifications
Font Size


  • Ambrose, B. (2005). Banks must change tactics as CSR goalposts shift, The Banker, 7 March.

  • Argandona, A. (1995). The treatment of ethical problems in financial institutions and markets. In Argandona, A. (Ed.). The Ethical Dimension of Financial Institutions and Markets. Pp. 1–26. Berlin: Springer.

  • Argandona, A. (2006).From Ethical Responsibility to Corporate Social Responsibility. Paper Presented at the 6th International Symposium on Catholic Social Thought and Management Education, The Good Company. Catholic Social Thought and Corporate Social Responsibility in Dialogue, pp. 5–7 October 2006. Rome.

  • Armendariz, B., & Labie, M. (2011). The Hand Book of Microfinance. Singapore: World Scientific Publishing Co. Pte. Ltd.

  • Armstrong, S. S. (2006). Moral Skepticisms. New York: Dutton.

  • Arunachalam, R. S. (2011).Human Resource Systems in MFIs, Social Performance, Client Protection and Responsible Micro-Finance: What Is The Relationship? Retrieved from http://microfinance-in-india.blogspot.in/

  • Crane, A. & Matten, D. (2010). Business ethics. New York, NY: Oxford University Press

  • CRISIL. (2009).India - Top 50 Microfinance Institutions, CRISIL Ratings, October.Mumbai,

  • Cull, R. A. Kunt, D. & J. Morduch, (2008).Microfinance meets the market, Policy Research Working Paper no. 4630, World Bank, Policy Research Working Paper no. 4630.

  • De Aghion, B. A. & Morduch, J. (2005). The Economics and Microfinance. Cambridge, MA: MIT Press.

  • Dehejia, R., Montgomery, H. & Morduch, J. (2005). Do Interest Rates Matter? Credit Demand in the Dhaka Slums, ADB Institute Discussion Paper, 37. Manilla.

  • Donor Information Resource Center at Consultative Group to Assist the Poor (CGAP). (2003). Making Sense of Microcredit Interest Rates, Direct Training Module. April.

  • Harris, S. D. (2006). State of the Microcredit Summit Campaign Report 2005, Microcredit Summit Campaign.

  • Helms, B. (2006). Access for All. CGAP.

  • Hudon, M. (2006). Fair Interest Rates When Lending to the Poor, Are Fair Prices Derived from Basic Principles, Working Papers CEB 06-024.RS, Université Libre de Bruxelles.

  • Hudon, M. (2008). Norms and Values of the Various Microfinance Institutions, International Journal of Social Economics, 35(1/2), pp. 35-48.

  • Hudon, M., (2009). Should Access to Credit be a Right?, Journal of Business Ethics, 84(1), pp. 17-28.

  • Kinetz, E. (2012). Small Loans add up to Lethal Debts. 25th February, 2012. Mumbai: The Hindu,

  • Littlefield E. & Holtmann, M. (2005). Microfinanciers Overtake their Commercial Peers. The Banker, 4th July. Morduch, J. (1999). The Microfinance Promise, Journal of Economic Literature, 37, pp. 569-614.

  • Nair, T. S. (2010). Commercial Microfinance and Social Responsibility: a Critique. April 12, 2012. Retrieved from http://mpra.ub.uni-muenchen.de/24412/1/ Commercialisation_of_mF-MPRA.pdf

  • Oxfam website-private sector microfinance. March 27, 2012. Retrieved from http://www.oxfam.org.uk/resources/downloads/FP2P/FP2P_Priv_Sector_Microfinance_BP_ENGLISH.pdf

  • Prahalad, C. K. (2005). The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. USA:Wharton School Publishing.

  • Prior, P. & Argandona, A. (2009). Credit accessibility and corporate social responsibility in financial institutions: the case of microfinance, Business Ethics: A European Review, 18.

  • Reserve Bank of India. (2009). Handbook of Statistics on Indian Economy. Retrieved form http://rbi.org.in/scripts/AnnualPublications.aspx?head=Handbook%20of%20Statistics%20on%20Indian%20Economy

  • Schreiner, M. (2003). A cost-effectiveness analysis of the Grameen Bank of Bangladesh, Development Policy Review, 21(3).

  • Smith, R. (2006).The Changing Face of Microfinance in India, the Costs and Benefits of Transforming from an NGO to Non-Bank Financial Company. Retrieved from http://fletcher.tufts.edu.

  • Sriram M. S. (2010).Commercialization of Microfinance in India: A Discussion on the Emperor's Apparel, Working Paper No. 2010-03-04. Indian Institute of Ahmadabad.

  • Sriram, M. S. (2010). Microfinance: A Fairy Tale Turns into a Nightmare, Economic & Political Weekly EPW, October 23, xlv (43)

  • Stiglitz, J. E. & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information, American Economic Review, 71, pp. 393-410.

  • Stiglitz, J. E. (1990). Peer Monitoring and Credit Markets, World Bank Economic Review, 4(3), pp. 351-66.

  • Tannir, L. S. C. (2010 ). On the Social and Financial Effects of the Transformation of Microfinance NGOs, International Society for Third-Sector Research and The John's Hopkins University, Voluntas , 21, pp. 440-461. Doi: 10.1007/s11266-010-9136-6.

  • Triodos Facet Website- the Triple Bottom Line for Microfinance. (March 27, 2012). Retrieved from www.Triodosfacet.nl/content/view/54/31/lang,english/.

  • Vakulabharanam, V. & Motiram, S. (2007). The Ethics of Microfinance and Cooperation, Éthiqueet economique/Ethics and Economics, 5(1). Retrieved from http://ethique-economique.net/

  • Velesquez, M. G. (2007). Business Ethics, Concept and Cases. Pearson Education: New Delhi.

  • Woller, G. (2002). The Promise and Peril of Microfinance Commercialization. Small Enterprise Development, 13, pp. 12–21.


Abstract Views: 521

PDF Views: 0




  • A Case Study on the Ethical Issues in MFIS

Abstract Views: 521  |  PDF Views: 0

Authors

Susmita Mukhopadhyay
Assistant Professor, VGSOM, IIT Kharagpur, Kharagpur, India
Saswat Barpanda
Research Fellow, VGSOM, IIT Kharagpur Kharagpur, India

Abstract


Presently, many micro financial institutions (MFIs) are moving towards the market and are exposing themselves to a cutthroat competition in the name of lending to the poor. In the process they have started chasing targets and numbers. It seems that the social and developmental considerations, which have traditionally motivated microfinance, may have lost their importance as some MFIs have become radically commercial (Sriram, 2010). There are certain costs and benefits associated when a Microfinance NGO transforms to a Non-Bank Financial Company (NBFC). The charge against these MFIs who are transforming into NBFCs and now aspiring to make an initial public offering (IPO) is that they are enriching themselves and their shareholders at the cost of poor people. Therefore, this commercial success of microfinance sparks a eyebrow raising question of whether microfinance actually lead to sustainable development or are the MFIs drifting from the second objective of being socially sustainable in order to fulfill the first objective i.e. being financially viable. In our study we have taken account of the MFIs which are transforming into NBFCs and studied their mode of operation. Our study highlights the money laundering practices, sustainable investment or corporate governance issues, role of stakeholders in the process of transformation and discusses them from various ethical perspectives.

Keywords


Microfinance, Business Ethics, Triple Bottom Line, Sustainability

References