How Can We Recover Funds Lost to Employee Fraud in Our Microfinance Company?

Dear All,

I am writing to you from a Microfinance Company. We provide loans to poor urban working women based solely on group guarantees. There have been instances where staff members have engaged in fraudulent activities by collecting installment and deposit amounts from our customers without crediting them to the office account.

We have engaged a few legal consultants on a retainer basis, but it seems that their advice has not been effective in resolving the situation. The individuals responsible for these actions are no longer employed by our company.

Do you have any suggestions on how we can recover these significant amounts? Your input in this matter would be greatly appreciated.

Regards,
K J Manoj

Dear Manoj,

How can I, as an investor, invest in the Micro Finance Co? Do let me know.

Regards,
SD

Most of these kinds of transactions land into trouble, as explained. Your promoters have to think 1000 times about risk management before appointing agents who collect sums from people.

As a company, you never bother about people's money because you take everything casually. Instead of your business promoters, your employees run away with money because they must have a sense of a similar approach to the promoters' intentions. If a promoter can think of absconding, why can't an employee?

In this case, the first to escape will be a winner. The promoters' approach is exposed in this case; they also thought, why bother about the security of people's money because they had similar intentions as it often happens in such schemes.

Rashid

Hi Manoj,

File the police case through your customers. Based on the complaint, the police will subject your old employees to inquiries.

--- Shash

Dear Manoj,

Please speak with this person and discuss the matter with the legal department and the most capable senior person in the organization. See if any concrete resolution could be reached with him. If successful, that's great. If not, before proceeding with sending a legal notice, warn him that his actions may have serious consequences, such as being unable to secure employment or loans from financial institutions for the rest of his life.

If the person remains non-compliant, send a legal notice to his home via Registered Post and Certificate of Posting. Additionally, publish a notice in all newspapers stating that the individual in question is no longer associated with our company. It should be made clear that he has misappropriated company funds, and caution others against engaging with him, as doing so would be at their own risk and responsibility.

Regards,
Raykumar

Dear Sujoy,

Could you please send us your profile and more details on you as an investor so that I could take it forward with the management.

Regards,
Manoj

Dear All,

I am writing to you from a Microfinance Company. We give loans to poor urban working women purely on a group guarantee. There are staff members who have committed fraud in terms of collecting the installment and deposit amounts from our customers and not crediting them to the office account. We have engaged a few legal consultants on a retainer ship fee basis. However, it is now felt that nothing is working based on the legal advice received.

Do you have any suggestions on how we can recover such large amounts? Please note that these staff members no longer work for our company. Your suggestions in this regard will be highly appreciated.

Regards,
K J Manoj

---

It is relatively simple to handle. When you recruit collection agents, be very clear about the identity of the person selected and obtain two reasonably clear references, all with proper address references. Collect three undated blank cheques from the employee, favoring the Microfinance Company, leaving everything blank except the employee's signature. Once a default in collection and non-credit is observed, warn the employee that the cheque will be presented for clearing. If the issue is not resolved, present the cheque and proceed under NI Act, as it is a criminal offense.

At the time of collecting the blank cheque from the employee, collect a letter from the employee stating that they are providing the Microfinance Company with such and such blank cheques which can be presented if a default occurs. This should be sufficient to end this menace, I presume.

Stephen Jose

Dear Manoj,

Before hiring any employee, what I have thought is that all verifications should be done by the employer. However, in your case, this is very concerning because in MFI, all cash transactions are handled by field staff. I don't have any specific suggestions regarding this issue, except to lodge an FIR, since the candidate has already left the job.

In the future, to prevent such frauds, you need to change the mechanism for onboarding your field staff. Employees should be required to provide one to two months' prior notice to the employer. This requirement should be clearly mentioned in both the Offer Letter and the Joining Letter.

Thank you.

All microfinance companies are money eaters and cheat poor peddlers and hawkers. They collect money from poor people, and most of their agents or the company itself abscond once the date of maturity for full payment arrives. The average life of such companies is 4 to 5 years because most schemes run for these durations. They collect money during this period, and on the day of repayment, they abscond. 😬

Risk Management and Prevention

There are two things associated with this: 1. risk management (which is the current scenario) and 2. risk prevention (which can prevent such incidents in the future).

Getting money back is a definite challenge, as it needs to be proved that the customer has paid and has a receipt for such payments. Without such a scenario, it will be difficult to prove. The description stated has two sides: either the customer has not paid, or paid and not remitted to the company, assuming one of them is a mistake.

Since this has happened once, it can happen any day as the system cannot track such lapses. The effort has to be in implementing the right systems; this has to be the focus of any money-related challenges.

Addressing Employee Fraud in Microfinance

As simple as filing a case from both ends (yourself & customers) on the employees. File fraud/cheat cases on the ex-employees. They can go nowhere. Disclose them to society through daily newspapers. You can also disclose those to your microfinancing co. network so that they can be caught immediately.

Last but not least - file a complaint stating the employee stole the pool of data and the collections. They should surrender or get punished.