The Economic Times on February 1 front-paged a news item on the salaries of microfinance owners and professionals. The headline item was the remuneration of Udaia Kumar, Managing Director and owner of Share Microfin, who drew Rs 7.4 crore ($1.65 million) as compensation in financial year 2009-2010.
The report compared his pay with that of many bank CEOs including Aditya Puri of HDFC Bank who took home only Rs 3.4 crore ($750,000) compared to what Kumar earned. Considering it’s still early days for the industry, which essentially thrives on loans given to the poor people, Kumar’s salary looked a bit outrageous. The company, of course, is free to decide on the pay of its employees and directors since it’s privately held and is owned by Kumar (with some private equity investors thrown in). Is high salary a norm in MFI industry? Not really. Kumar’s pay is an exception rather than the norm. According to VCCEdge, a research platform for private equity investors and dealmakers, Kumar draws the highest pay by far compared to the others. About three or four executives draw a little more than Rs 1 crore ($250,000) – which may be in standard with many other sectors – while the rest of the executives and promoters draw less than Rs 1 crore salary (see table). In a private enterprise, it’s the board’s prerogative to decide how much the directors and its executives should be paid. But in a sector like microfinance – whose mainstay is the social aspect of lending to the poor – then an astronomical sum like Kumar’s pay will be subject to criticism. End of the day, Kumar’s business is to draw capital from PSU firms like SIDBI and banks and then lend it to poor at much higher rate than a PSU bank. The entire business has a social character. MFI cannot be treated like any other NBFC, it may need some self regulation before the government steps in.