An Object Lesson in Corporate Crisis Management

Stern advice from Daniel Rozas for the Andhra Pradesh microfinance industry on how it should manage---and should have managed---the crisis of 2010:

There is at SKS and probably at most Andhra MFIs a sense of victimhood. Such is the extent of their focus on the wrongs committed by the AP government that they fail to see---indeed, they actively try not to see---their own culpability. For there is little doubt that there were instances of severe harassment by the MFIs that may have contributed to borrower suicides. Those cases may be few, far fewer than what had been alleged by the AP government. But they are there nevertheless. It also seems clear that the MFIs, via MFIN and individually, have taken steps to insure that such harassment can’t happen again, and in so doing, they have sought to rebuild their credibility. That is, of course, of critical importance. However, what they have neglected is the first step of credibility management---admitting one’s own wrongdoing and taking responsibility for it.

It’s time to stop circling the wagons. MFIN should publish the Glocal investigation report in full. Each MFI should then apologize and appropriately compensate the families of those victims for whose suicides they were found to have borne some responsibility. Finally, it is high time for the boards of many other large Andhra Pradesh MFIs to display real governance and show their current managers the door, then turn attention to themselves and do some house-cleaning by bringing in new directors (a nudge from RBI would help here). Going forward, the MFIs, under the auspices of MFIN, should submit themselves to annual audits of lending and collections practices, and insure that the findings---however damaging---are made public. And for those MFIs that are more worried about solvency than their public image, it’s worth bearing in mind that if they are to have any future at all, these changes cannot be avoided. Better now than later.Going through all this at a stage when the sector appears to be recovering may well create difficulty in the short run. It would’ve been far preferable to do this last summer. But despite the passage of time, the underlying absence of trust in microfinance institutions---both in India and abroad---still runs deep. By publicly acknowledging and atoning for their wrongdoing, the struggling MFIs of Andhra can finally start the long process of rehabilitating the sector’s tarnished reputation. Only then can they hope to shake off the heavy burdens of the sector’s sorry past.