Governance

Governance is a process by which a board of directors, through management, guides an institution in fulfilling its corporate mission and protecting the institution’s assets. Fundamental to good governance is the ability of individual directors to work in partnership to balance strategic and operational responsibilities. Effective governance occurs when a board provides proper guidance to management regarding the strategic direction for the institution, and oversees management’s efforts to move in this direction. The interplay between board and management centers on this relationship between strategy and operation, both of which are essential for the successful evolution of an institution.

Library Resources

resource title type year resource
Strengthening the governance and performance of state-owned financial institutions Paper 2007

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State-owned financial institutions are still a controversial topic - loved by many politicians, criticized by most economists. One of the key problems is the lack of competence and proper incentives for bureaucrats in banking. Proper corporate governance structures might go a long way in alleviating this problem. Corporate governance arrangements define the responsibilities, authorities and accountabilities of owners, boards of directors, and executive managers of a company. This is as important for state financial institutions as for private sector companies.

The author of this paper recognizes that governance of state financial institutions - especially development-oriented ones - is more challenging than the governance of private companies, as they are too much exposed to political intervention and not enough to market discipline. However, based on numerous good examples, he goes on to lay out a number of principles which would strengthen the corporate governance of state financial institutions, ranging from setting performance criteria over the appointment and role of board members to a proper auditing process. In his recommendations the author takes full account of the guidelines recently published by the OECD and the Basel Committee for Banking Supervision which provide a comprehensive corporate governance evaluation framework relevant to state-owned commercial and development finance institutions.

The paper concludes with a case study of the Development Bank of South Africa which exemplifies many of the principles. The key challenge, as always, is in the practical implementation of principles, especially in weak institutional environments.

Author Scott, D.H.
Publisher World Bank
Number of Pages 56 pp.
Primary Language English (en)
Region / Country Global
Keywords State-Owned Development Finance Institutions, Governance
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Making Microfinance Work: Managing for Improved Performance Document 2006 English (en)

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Microfinance has long been recognized as having significant potential to create jobs and reduce poverty but to meet the twin challenges of growth and sustainability, managers of microfinance institutions (MFIs) must not only understand essential management functions: they must also be armed with innovative ideas and strategies to succeed in today's increasingly competitive environment. This training manual provides a valuable overview of the key management principles necessary to optimize the services of MFIs and brings together useful lessons from numerous MFIs worldwide to help managers strengthen the performance of their unit, branch or institution.

Either used alone, or as part of a management training course, "Making Microfinance Work: Managing for improved performance", offers an array of tools and advice. The manual examines the markets and marketing of MFIs and captures the different ways in which managers can communicate the value of their products and services. It introduces effective methods for enhancing efficiency and productivity which minimize the trade-offs MFIs invariably face as they try to provide services over the long term.

The topic of managing risks is also covered. The manual offers strategies to prevent risk from occurring and, if it does occur, explains how to rectify the situation. Practical techniques for allocating costs and determining prices are also highlighted, as well as the importance of plans, budgets and reports.

In a clear, easy to follow presentation, the manual includes illustrations and case studies to assist managers in applying the concepts outlined in the text. An extensive list of additional reading and useful Internet resources is also provided.

Making Microfinance Work: Managing for Improved Performance  -  English (en)

Improving MFI Performance in Competitive and Saturated Environment Paper 2006

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The paper suggests that the profitability rationale (the establishment of commercial, profit-making microfinance models) has led to an increase in the number of sustainable MFIs and has often driven the same microfinance institutions towards more easily-accessible economic activities and zones in order to limit operational expenses. It notes that rural zones in particular have been neglected for urban areas where operational expenses are lower.

It is argued that this is especially true as a high concentration of competition in some geographic zones and in a number of countries has led to a gradual observation that the diversity of MFI programmes in very competitive markets yields both positive effects (low interest rates, diversification of offer, proximity, etc) and negative effects (higher risk, overindebtedness, occasional unfair competition and profit search geared towards profitable clients).

An environment is said to be saturated and competitive according to a number of factors. These include the presence of many MFIs in one geographic zone, a range of financial services for local microentrepreneurs, MFIs difficulty in accessing new clients or retaining existing ones (high desertion rate), competition between MFIs for new clients, clients committing to multiple MFIs, etc. There are a number of indicators, but the paper points out that the central point is that in such an environment , the offer of financial services, especially loans, is higher than the actual microentrepreneurs’ demand.

In setting out how the performance of MFIs can be improved in a competitive and saturated environment, this paper is based around the following 4 main topics:

  • Ensuring fair competition
  • Controlling the effects of competition on the interest rates
  • Avoiding cross indebtedness: the cause of overindebtedness
  • The consequences of regulation: implementing a suitable legal context
Author Duquet, S
Publisher Planet Finance
Number of Pages 27 pp.
Primary Language English (en)
Region / Country Global
Keywords Competition, Performance, Sustainability, Profits
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Governance: Organising, Developing and Empowering Boards to Oversee MFI Operations Paper 2006

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Governance is still a relatively new concept in microfinance and its evolution is characteristic of the challenges that all industries face as they develop. At start up, businesses are preoccupied with vision setting, setting up systems, mobilizing resources and developing market entry strategies. At this stage, scant attention is paid to governance. At the next stage organizations are concerned with balancing growth with profitability. As the organization matures and new owners enter the business, then governance issues begin to emerge. According to the author of this paper, there is growing awareness about the need for effective governance in microfinance institutions, but it has not attracted the same level of concern and scrutiny as other issues such as growth capital, outreach, sustainability and impact. Governance is the least discussed, least researched and least funded issue in the microfinance development arena. Funding is available for product development, innovations, commercialization, transformation, regulation, capacity building, but virtually no funding is dedicated to strengthening of governance structures and systems in microfinance.

This writer believes that poor governance is the greatest risk that threatens the sustainability and viability of the microfinance industry. In this very readable paper she examines the purpose and scope of corporate governance and suggests that good governance for financial institutions is built around risk management. She goes on to discuss institutional risks, fiduciary responsibility and operational risks, including fraud, theft, human errors, credit risk and inefficiency. A 2004 evaluation study conducted among MFIs in East Africa apparently concluded that fraud and outright theft were common in many MFIs and that donors perpetuated these situations because they continued to pump money into organizations that had failed to account for previous funding. Although they have less control over them, boards should also assess the external risks to which they are exposed, e.g. regulatory risk, competition risk, demographic risk, physical environment risk and macroeconomic risk.

The author goes on to examine ways in which boards can be empowered to perform their duties more effectively. She reviews selection methods and training and then emphasises the importance of information: "Board members are the public face of the institution and must therefore be equipped with adequate and timely information about the organization." Mechanisms for updating board members include regular bulletins, regular briefings by the CEO, internal marketing to board members whenever a new product or branch is launched and regular board reports.

Finally the author recommends the following steps to enhance the board empowerment process in unregulated MFIs:

  • The MFI industry should develop an industry-wide Code of Corporate Governance to which every MFI should be required to subscribe and comply. Sanctions for non-compliance should be applied (e.g. blacklisting and publishing the names of rogue MFIs). This is best done at country /regional level.
  • Resources (financial and technical) should be committed to developing the capacity of boards.
  • Donor and investors should encourage and monitor the status of corporate governance in all institutions they support.
  • Clients and shareholders should be educated and empowered to monitor and demand sound governance from microfinance institutions.
  • There is need for more research into the impact of governance on the performance and sustainability of MFIs and case studies on governance developed and disseminated.
Author Sabana, B.
Publisher Microcredit Summit Campaign
Number of Pages 38 pp.
Primary Language English (en)
Region / Country Global
Keywords Governance, Risk Management
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Governance Issues in Microfinance Paper 2005

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This paper was presented at the International Year of Micro Credit Workshop on 15th December 2005. It is aimed at investors, directors, and managers of microfinance institutions and sets out to address why good governance is important to this audience. It is predominantly targeted at microfinance institutions that focus on financial services (loans, deposits, leasing, etc.) rather than those focused on non-financial services (classes on literacy, numeracy, nutrition, health, etc.) or business development.

The paper notes that good governance is important for the following reasons:

  • Prevent fraud and mismanagement
  • Promote sound decision making
  • Avoid costly fines and litigation
  • Create/maintain a positive corporate image
  • Attract and retain clients
  • Attract and retain financing and investment (from commercial banks)

Good governance is defined here as the process by which a board of directors, working through management, guides an institution in fulfilling its corporate mission and protecting the institution’s assets. It is noted that fundamental to governance is the ability of individual directors to work in partnership so that they can balance long-term strategic and short-term operational responsibilities. Good governance occurs when a board provides proper guidance to management regarding the strategic direction for the institution, and oversees management’s efforts to move in that direction.

The governance issues this paper explores are covered under the following headings- the dual mission: balancing social impact with financial objectives, Ownership of microfinance institutions, fiduciary responsibility of microfinance institutions, and risk assessment capacity in microfinance institutions.

Author USAID Nigeria PRISMS Project
Publisher USAID
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Governance, Financial Management, Social Performance
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The Practice of Corporate Governance in Shareholder-Owned Microfinance Institutions Paper 2005

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Shareholder-owned microfinance institutions (MFIs) are playing an increasing role in the delivery of financial services to the poor. Shareholder-owned MFIs are for-profit, limited liability companies, whose ownership is in the hands of multiple (mainly private) shareholders. Most are licensed financial institutions – finance companies and banks. Many are deposit takers.

This paper on corporate governance for shareholder-owned MFIs aims to provide practical guidance for stakeholders in governance – investors and prospective investors, board members, and senior MFI managers – to use in assessing the governance of their own MFIs. The guidelines have been developed by the Council of Microfinance Equity Funds (CMEF). During the course of preparing the paper, the CMEF consulted with investors from CMEF member funds, MFI board members, MFI executive directors, microfinance experts, and corporate governance experts who exchanged views in order to arrive at a consensus.

The paper begins by briefly considering the notion of sound governance, setting out its functions and the key actors involved. It then also considers the responsibilities of directors and highlights that their major responsibilities reflect the broad purposes of governance.

The first main section of the paper looks at special considerations for shareholder-owned MFIs. It then moves onto to cover the structuring of an effective board. Here it discusses board size, composition, appointment period, conflict of interest policy, and responsibilities of the board Chair and CEO, amongst other items. Following this the paper also sets out effective board procedures, which looks at board meetings, committees, and information and disclosure. Guidance for key board decision making is also provided – this includes major strategic decisions, oversight and compensation, as well as board disputes and the role of the board in crisis.

The paper ends with a brief discussion on the evolving nature of good governance. It stresses that good governance is not automatic and must be developed over time. It highlights four key processes the board must pursue to improve their own functioning:

  • Board training
  • Board retreats
  • Opportunities to observe the business and talk with clients
  • Self-evaluation
Author Council of Microfinance Equity Funds
Publisher Consejo de Fondos de Patrimonio de Microfinanzas , CMEF
Number of Pages 42 pp.
Primary Language English (en)
Region / Country Global
Keywords Agricultural Microfinance, Governance
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Managing social performance in microfinance Guideline 2005

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MOST MICROFINANCE institutions (MFIs) have a social mission. They may seek to reduce poverty, to reach people excluded from financial services, to empower women or to promote community solidarity. Social performance is the effective translation of an institution’s social mission into practice; social performance management (SPM) helps an organisation set and achieve its social goals by tracking social performance and using this information for decision-making that puts learning into practice.

Social performance management is good both for clients and for business. It should be seen as a core part of good business practice. If MFIs know what the market ‘wants’ as well as the developmental ‘needs’ of their clients, they can improve services. This builds loyalty, reduces default and increases demand for savings, credit and other services. Social performance indicators warn about problems and provide social and financial information that helps influence future performance.

This guideline provides a series of steps and checklists to assist managers in designing and using an effective SPM system. The framework provided is drawn from Imp-Act’s experience with 30 MFIs around the world. It is meant to be used in conjunction with the other Imp-Act Practice Notes that address more specific and technical aspects of this broad subject. The steps outlined for a successful SPM system are:

  1. Setting your social performance objectives
  2. Monitoring and assessing your social performance
  3. Using SPM and making it part of your everyday work

Even if your SPM system is well designed, it will only be useful if it is fully integrated into the organisational structure and daily work. You need to make sure that SPM is aligned with other processes, such as human resources, marketing, financial management, budgeting, strategic planning, incentives, communications and governance.

As with all Notes in this series, this one is clear, practical and applicable to a wide variety of financial institutions which have a social objective.

Author Imp-Act
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Mission, Agricultural Microfinance, Social Performance, Monitoring
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Conduite d’un diagnostic de la gouvernance pour une institution de microfinance Article 2005

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Trop souvent, les questions de gouvernance sont limitées à l’analyse des relations entre conseil d’administration et équipe de direction. L’analyse de la gouvernance d’une institution de microfinance (IMF) nécessite une réflexion portant sur l’articulation entre la structure institutionnelle de la propriété, le rôle des acteurs dans les prises de décision et les processus et modes d’organisation de l’institution. Cet article présente la conduite d’un diagnostique de la gouvernance pour une institution de microfinance. Il s’adresse aux directeur, président, membre du conseil d’administration d’une IMF, au représentant d’un bailleur de fonds finançant une IMF, à l’investisseur dans une IMF, au représentant du maître d’ouvrage d’une IMF, au responsable de la supervision des IMF, et au directeur de l’association professionnelle de microfinance. La conduite d’un diagnostic partagé de la gouvernance permettra d’identifier les solutions aux questions suivantes afin d’élaborer avec les parties prenantes, un plan d’action permettant d’améliorer la gouvernance au sein de l’institution de microfinance concernée :

  • Comment veiller à une répartition équilibrée des rôles dans l’institution ?
  • Comment s’assurer que les décisions opérationnelles et stratégiques sont prises au bon niveau ?
  • Comment veiller au respect de la mission sociale de l’institution ?
  • Comment gérer les tentions entre élus et salariés ?
  • Comment s’assurer de l’existence d’un contrepouvoir dans l’institution ?
Author François Doligez, Dorothée Pierret, Serge Lacan
Publisher IRAM
Number of Pages 8 pp.
Primary Language English (en)
Region / Country Global
Keywords Governance
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Capital Plus - The Challenge of Development in Development Finance Institutions Paper 2004

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This paper is an executive summary of a position paper written by members of the Development Finance Forum (the Forum), a group of practitioners that has met for a week each year since 1997. The Forum members use the term “development finance institutions” (DFIs) to refer to diverse institutional forms, customer strategies, and products, which include microcredit, loans to small and medium sized businesses, and investments in housing projects and community facilities.

The paper is aimed at other practitioners and socially-minded investors and donors. Its aim is to set out, from a practitioner’s perspective, some of the pressing issues facing DFIs that choose to have a “double bottom line” – of profitability and social impact – and to offer thoughts about how best to approach these issues. To survive and be useful they must be sustainable. And to be useful developmentally they must work towards social and economic impact.

The authors see the tool of capital as the glue around which other tools – technical assistance, information services, environmental remediation, sectoral interventions, and more – adhere. They argue that not only are these other tools attracted to capital, they are made more effective by it.

This paper summarises the seven section of the main position paper written by the Forum. These are:

  1. The Personal and the Institutional: Pioneering, Growing and Other Tensions
  2. Social Capital
  3. Accountability and Social Impact
  4. Innovation
  5. Smart Subsidy
  6. The Enabling Environment
  7. Governance
Handbook for the Analysis of the Governance of Microfinance Institutions Document 2004

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Organisations providing microfinance through a variety of approaches have proved they are capable of bringing financial services to populations excluded from the traditional banking sector but nevertheless continue to face challenges relating to institutionalisation and sustainability. The sustainability of an MFI demands not only financial viability but also the ability to adapt to legal frameworks, to develop a strategic vision and create an organisation that is transparent, efficient and accepted by all the stakeholders involved. These issues can be grouped together under the concept of “governance”. Governance in microfinance is situated at the crossroads of two approaches: a political / ethical approach, which emphasises the strategic vision of the institution, the legitimacy of its decision-makers and the integration of the institution into its environment; and an economic / managerial approach, which regards governance as a way to improve efficiency, reduce costs and optimise means.

This handbook has been written primarily for the elected officials and directors of institutions, but will also be useful to donors and consultants. It is relevant to all microfinance institutions regardless of their stage of development or legal status (non-profit organisation, project, private company, commercial bank, cooperative, village bank, etc.). The book has been organised into two modules:

  1. A diagnostic tool for evaluating governance of an MFI.
  2. A review of key issues and challenges in governance.

The two modules are complementary and are organised around five themes: Mission / vision, Financing, Institutional type, Stakeholders and Organisation.

The diagnostic tool is a clear and well presented checklist of questions accompanied by definitions and explanations. It is very well written indeed and will encourage reflection on really fundamental questions such as:

  • Who has the decision-making power?
  • Who owns the capital?
  • Which stakeholders make which decisions?
  • How are decisions made?
  • How are crises or problems managed?

A variety of matrices are suggested to facilitate analysis and the reader is pointed at the relevant sections of the second module for further guidance and explanation. The key topics in module two include:

  • Defining the mission: socially or commercially oriented?
  • Financing and governance: what role should the funders play?
  • Institutional type and governance: what makes the most sense?
  • Growth: a virtuous or vicious circle?
  • Multiple stakeholders: how to reconcile contradictory interests.

Throughout this section there are illustrative case studies and examples and tables containing concise summaries of critical points.

Building effective governance or making changes in the light of governance problems are not challenges that can be resolved overnight. Even when a form of governance works, it is not fixed in stone and must evolve in parallel with the institution and its environment. This handbook is highly recommended as a source of reference for all those involved in the practice of managing or guiding financial institutions addressing the microfinance market.

Author Lapenu, C; Pierret, D.
Publisher CERISE; IRAM
Number of Pages 92 pp.
Primary Language English (en)
Region / Country Global
Keywords Mission, Agribusiness Management, Governance, Governance Microfinance Institutions
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Internal audit in banks and the supervisor's relationship with auditors Guideline 2001

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As part of its ongoing efforts to address bank supervisory issues and enhance supervision through guidance that encourages sound practices, the Basel Committee on Banking Supervision (The Committee) issued this paper on internal audit in banking organisations and the relationship of the supervisory authorities with internal and external auditors. Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. It helps an organisation accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

External auditors can provide an important feedback on the effectiveness of this process, while banking supervisors need to be satisfied that effective policies and practices are followed and that management takes appropriate corrective action in response to any internal control weaknesses identified by either the internal or external auditors. Co-operation between supervisor, internal auditor and external auditor optimises supervision.

The principles set out in this paper are intended to be of general application, even though they have to be applied within a specific supervisory framework. There are significant differences between countries regarding the use of on-site and off-site supervisory techniques. Also the degree to which external auditors are used in the supervisory function varies widely. While the exact approach chosen by supervisors in individual countries will depend on these types of factors, all members of the Basel Committee agree on the principles set out in this paper. The document is clearly written with each principle and paragraphs of explanation clearly numbered.

For example principle 19 states: "The creation of a permanent audit committee is a solution to meet the practical difficulties that may arise from the board of directors’ task to ensure the existence and maintenance of an adequate system of controls. In addition, such a committee reinforces the internal control system and the internal and external audit. Therefore, banks are encouraged to set up a permanent audit committee, especially if they are involved in complex activities." The document goes on to provide guidance on the composition and functions of an audit committee.

Understanding the principles set out in this document is an important step towards ensuring good governance in financial institutions.

Author Basel Committee on Banking Supervision
Publisher Bank for International Settlements (BIS)
Number of Pages 25 pp.
Primary Language English (en)
Region / Country Global
Keywords Internal Audit, Financial Reporting, Supervision
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Principled Practices in Microfinance Book 2001

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Too often when one works in-depth in technical fields like microfinance, it is easy, from time to time, to lose sight of why we do what we do. This guide reminds us of the bigger "why", and defines the guiding principles of Catholic Relief Services' (CRS) microfinance work, and stresses the need for these to be constantly reiterated. Even though these are principles that guide CRS's work alone, the article is of great value as the principles are relevant to all microfinance practitioners, both new and seasoned. This is, essentially, an attempt to get those who are consumed with the "here and now" to glance up and remember why we are in the business of microfinance after all.

CRS's six principles in microfinance draw from their Catholic Social Teaching (CST), their own core values, and their experiences. The principles are to:

  • Serve the poorest clients. To forward the CRS goal of advancing social and economic justice, they shape their services to serve the poorest communities. Women make up the majority of their clients, as they generally have the least means to support themselves and the least access to credit.
  • Link loans to savings. Credit and savings are both important means to finance the growth of economic activities. CRS connect the amount lent to the amount saved to help clients build wealth as they borrow.
  • Use solidarity guarantees. Group guarantees replace collateral as a means to secure loan repayment. Solidarity guarantees link new loans to the repayment of old loans. A group of clients guarantees the loans of fellow group members with the understanding that no one in the group will receive a new loan until all loans are repaid. This strategy keeps repayment high.
  • Practice participatory management. Democratic processes are key to empowering the poorest in a community. Clients are directly involved in the design, management and administration of the services they receive, from creating by-laws to voting on loan applications to choosing repayment schedules. In this way, CRS includes those most affected by decisions in the decision making process.
  • Invest in scale and self-sufficiency. The investment that a program makes in research, design, staffing and training is crucial to its success. Achieving scale (reaching at least 5,000 clients per partner) advances the CRS mission to serve the poor. CRS aims to achieve self-sufficiency through efficient operations and by charging market rates of interest.
  • Plan for permanence. Prior to launching a new program, CRS plans how the program will evolve into a sustainable resource for the poor. Permanence may include creating a formal financial institution, helping their partners transform programs into specialized microfinance organizations, or consolidating pilot activities and integrating them into larger local entities.

While these core principles should govern all microfinance activities, they are constantly evolving and improving through experience and learning, though they should continue to remain based on the values of human dignity, stewardship, solidarity and the common good.

Author Wilson, K.
Publisher Catholic Relief Services
Number of Pages 71 pp.
Primary Language English (en)
Region / Country Global
Keywords Microfinance Institutions, Self-Sufficiency, Mission
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The Board Rules: Founding an MFI Board Book 2001

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This booklet, from the Catholic Relief Services Microfinance series, seeks to guide the development of a new governing board of a microfinance institution (MFI). In fact, it charts the tiny individual steps by which a new MFI is created and run. Its audience is therefore people in the field looking for hands-on help and advice in starting a new MFI.

The booklet is divided into three logical sections. The first, “Preparation”, shows how to lay the groundwork for an MFI board: it debunks the myth that common ownership (eg in a credit union) equals better governance, and asserts the necessity of deciding which goal, a social/beneficial or essentially service-driven goal or a profit-driven goal, will take priority in a crisis. It then goes through the different steps needed to build a board and asks provocative questions about the sources of funding and the motivation of board members to participate, as well as which model of MFI to follow, with a very brief point-form comparative chart outlining different choices.

The second section, “The MFI’s Founding”, sets out a very clear sequence of steps to follow in order to establish the best possible board. It describes different phases of development in the life of an MFI: for example, in the first year, an MFI board might need to be small, with five members, but in subsequent years could and often should grow. It offers a sample agreement to be signed by a new board member, and lays out the different roles of various officers among the board members. This section concludes with a short consideration of the creation and passing of bylaws governing the MFI.

The third section, “The Founding Year”, goes into greater detail about the first crucial twelve months of the MFI’s life, including the important task of hiring a Chief Executive Officer (CEO), arranging a calendar of board meetings and board retreats, keeping meeting minutes, making a comprehensive plan of action for the first year, and building a learning agenda so board members can improve their own performance through seminars with experts. The booklet concludes with a description of two sample board meetings, followed by an analysis of why one was disastrous and the other successful.

This handbook is dense but clear, and it should serve as a useful guide to the process of building an MFI board. Text boxes on almost every page offer capsule examples of points under discussion, generally drawn from work undertaken by Catholic Relief Services. Calm and reasonable, it offers an excellent and comprehensive model for new MFIs.

Author Wilson, K.
Publisher Catholic Relief Services
Number of Pages 105 pp.
Primary Language English (en)
Region / Country Global
Keywords Agribusiness, Microfinance Institutions
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Principles and practices of microfinance governance Paper 1998

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This paper provides an introduction to the governance issues affecting microfinance institutions and the difficulties they have in balancing social impact with financial objectives. Different types of Board involvement are described, together with a review of the roles and responsibilities of Boards of Directors. The paper includes a section on how to achieve best practices in microfinance governance with respect to board membership, committee structure and procedures.

The paper can be downloaded in full or as a summary.

Author Rock, R.; Otero, M.; Saltzman, S.
Publisher Microenterprise Best Practices
Number of Pages 58 pp.
Primary Language English (en)
Region / Country Global
Keywords Microfinance Institutions, Governance
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Effective Governance for Microfinance Institutions 1997

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This brief paper reviews nature of governance and how ownership affects governance. It identifies the key challenges of governance to be:

  • How does the business preserve its vision?
  • How does it balance growth, risk and profitability?
  • How does it establish a governance system that holds management accountable without undermining its independence and flexibility?

 

The basic responsibilities of a board are reviewed and what composition is appropriate. The governance procedures and actions of the board members have to be such that they create accountability and enable stakeholders to trust one another.

The focus note concludes with an examination of governance in the microfinance industry, which it concedes raises more questions than answers.

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