A Case Study on the Ethical Issues in MFIs

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.

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