CENTRE FOR SELF-HELP DEVELOPMENT

Institute of micro-finance and cooperative development.

Check Mail
  • Home
  • News & Events

Retrofitting of Microfinance is the Need of the Hour – Lessons from International Program on Internal Audit System

The microfinance sector in Nepal has been mushrooming at an alarming rate in the past five years. Newer microfinance institutions (MFIs) have sprung up, who do not necessarily follow the fundamentals and principles of microfinance. Over crowdedness and the race to maximize profit by poaching the same microfinance members has led to an unhealthy environment in the sector. Staff at the field level are pressurized to meet the target of making new members in an already over-crowded region leading to duplication of clients, over-indebtedness and ultimately loan default.

This has become a glaring challenge for most MFIs in Nepal and without a strong internal audit system to keep issues at check, an institution remains at risk to the many problems that will follow. Keeping this in mind, the Centre for Self-help Development (CSD) organized a two-day ‘International Program on Internal Audit System’ from June 18 – 19, 2019 in Dhulikhel, Kavre. Two resource persons from world renowned Grameen Bank and Grameen Trust facilitated the program, sharing the Grameen experience and learning.

Welcoming the 31 participants from 21 MFIs, Executive Chief of CSD, Mr. Bechan Giri said, “Microfinance has proven to be an effective tool for poverty alleviation working for the socio-economic growth of the poor and under privileged. However, due to the quantitative growth in the number of MFIs, certain deviations in its fundamentals has taken place and we have had to hear unpleasant news. Through this program we hope to help MFIs make timely rectifications.”

Mr. Mir Hossain Chowdhury, Head of Training and Social Business Department at Grameen Trust, Bangladesh shared, “Nepal is like the second home of microfinance. Microfinance is for the poor with small capacity. However, due to faulty selection of members and over supply of credit, problems have been created at the field.” He cautioned, “Regulation cannot be compromised on either the Government, the regulatory authority, the MFI nor the member. MFIs need to be more humble and honest about their product and its impact.”

Addressing the audience, Chairman of CSD, Mr. Shankar Man Shrestha expressed, “You must understand that when Grameen Bank comes up with new innovations and methods, they do not disregard their core principles. But in Nepal we are slowly forgetting the fundamentals of microfinance and are getting embroiled in over indebtedness on clients and loan default. The major concern of microfinance is to help the poor graduate from poverty and its socio-economic impact, not in the number of clients it enrolls nor profit records.”

Mr. Shrestha continued, “Most MFIs have underestimated the importance of an efficient and effective internal audit system. Recruitment of quality staff for this purpose, may incur the MFIs increased cost in the beginning, but in the long-run it ensures the quality and enhanced performance of the institution.”

During the program it was found that most MFIs in Nepal had a very lax internal audit system that was often overlooked by the management. Experience sharing indicated that most internal auditors were often provided minimal and under qualified human resource and were often juggling between more than one departments. Additionally, they expressed that their suggestions and feedback were often overlooked and instead of being directly answerable to the Board of Directors, they found themselves answering to the management. They also voiced their concern over the lack of standardized audit practice and recurring errors despite remarks.

Sharing his experience, Mr. Rajan Bhattarai of Swabalamban Laghubitta Bittiya Sanstha Ltd. said, “Back in the day when the internal audit team used to visit the branch we used to be alert and afraid. But after the visit we would be relieved that everything was up-to-date. I even remember counting each spoon in the branch. Today, we are receiving pressure from the field staff to remove the passbook. Internal audit these days has become surficial and lacks in-depth study.”

The program dealt with current issues in the Nepalese microfinance sector, internal audit in microfinance – its need, importance, structure and methodology, common errors and frauds, guidelines for preparing an audit report and compliance and follow-up system. A session was also held on the corporate tax under the new monetary policy by chartered accountant Mr. Sujan Kafle where tax compliance and exemptions were discussed at length.

Mr. Mustafizur Rahman, General Manager of Grameen Bank, Bangladesh briefed the participants on the need for effective audit plan and standard practices and guidelines while preparing an audit report. He advised, “This training will be effective only when you return to your organization and share it with your top management. Effectiveness comes through execution.”

Representing the participants, Mr. Govinda Wagle of Vijaya Laghubitta Bittiya Sanstha Ltd. shared, “An effective internal audit system helps in timely awareness of misdoings in an organization and precautionary measures to be taken. We have understood that discipline at the field level is a must. However, we hope that the perspective of the management and Board Directors will turn favorable towards us.”

Delivering the closing remarks, Mr. Shankar Man Shrestha said, “The group or centre is an MFI’s pillar of strength. Most MFIs have made the mistake of not making strong centres and members. When we expect quick returns, we make mistakes. Microfinance is a social business and as social practitioners we must think of our social impact and the socio-economic change we can bring about. It is unfortunate, but many deviations have been made in this sector and now MFIs must go into retrofitting of microfinance. Else, this sector will soon face collapse.”

The participants, most of whom were participating in an internal audit focused training for the first time, were re-charged and enthusiastic to take up their role in their respective organizations delivering sound and effective internal audit checks and control.

News

Announcements