INFORMAL MICROFINANCE INSTITUTIONS AND ETHICAL ISSUES – A STUDY ON HARIHORPARA AND MURSHIDABAD-JIAGANJ BLOCK OF MURSHIDABAD DISTRICT

Abstract

Absence of adequate formal employment makes the poor segment of the society non-bankable. This forces them to borrow from local money lenders at exorbitant rates of interest. The main aim of Microfinance institutions (MFIs) is to serve the poor through providing financial services such as giving loans, provision of insurance coverage and a channel for their savings. Ethics is a moral judgment and acceptable standards of a society for guiding behavior of individuals and groups with reference to societal norms. Ethical behavior in business practices determines success or failure of an organization. The ownership structure of Indian informal MFIs is even now basically dominated by family and friends’ group. Moreover, remuneration patterns for the members of informal MFIs are quite irrational and unusually high enough. Thus, here the MFI board structure can be basically characterized by inadequate checks and balance of executives, lack of transparency in reporting, lack of independent board nomination, insufficient transparency about ownership and conflict of interest at various levels of management. Murshidabad district of West Bengal is well known for its Cotton Handloom Fabrics, Silk and Khadi segments as well as Ivory carving-handicrafts, ‘Khagrai Kansha’; all these are falling under the same umbrella of Small and Medium Scale Enterprise. Poor people of this district approach to these unorganized-informal sector for their funding and subsequently trapped into a huge pool of burden. This study aims at identifying the ethical issues noticed in informal MFIs in Murshidabad District of West Bengal as well as to provide recommendations to eradicate lacuna crept within their ethical code of conduct.