Corporate Governance is as essential for Microfinance Institutions (MFIs) as it is for any other company. Governance comprises the core systems, structures and relationships that enable a company to set and meet its objectives, manage risk and opportunity and monitor performance. MFIs, which provide a range of financial services to micro and very small enterprises and retail customers, need to ensure their governance structures appropriately correspond to their activities and risks, especially as they grow and professionalize. Common governance challenges for MFIs include managing the potential tension between commercial profitability and the social aims of the organization, finding and retaining qualified directors, the rise of new technologies and unclear ownership and shareholding structures.
As microfinance institutions have grown and professionalized over recent decades, their need for improved governance practices has increased. The growing challenges and risks facing MFIs – including changing market conditions, competition, technology – as well as the opportunities these also bring, all put more emphasis on the need for appropriate structures and systems to oversee and manage risk. A proactive, constructive board of directors, coupled with robust internal structures, is central to this. Well-structured governance systems can help manage the tension generated by the MFI’s double-bottom line, and are essential to help address complications arising from non-standard shareholding structures.
IFC has worked with numerous MFIs across six continents. Our engagements have ranged from training, reviews and assessments, through implementation support for comprehensive corporate governance improvement plans. This advisory support often complements our investment business activities in the MFI sector. We have worked with a number of MFIs in the process of transformation to help build appropriate governance structures, and we have helped boards set strategy that finds the right balance between profitability and social impact. Our advisory support is tailored to the needs of the MFI and the circumstances of the market, which can be significantly different across regions.
KazMicroFinance (KMF) lends to micro and small enterprises, including women entrepreneurs and customers in rural areas of Kazakhstan. When IFC conducted a corporate governance assessment in 2009, it’s governance practices were not aligned with the successful growth the company was experiencing: it had no board of directors, no strategic guidance or management oversight, weak internal controls and risk management. Working with IFC, the company established a professional board with an independent audit committee, as well as a clearly defined risk management function and a separate independent audit department. These improvements have enabled KMF to grow sustainably with better risk management, including credit, operational and financial risk, strong client protection practices, and to attract significant debt and equity investment marking it out as the leading MFI in Kazakhstan.
Fact Sheet: Corporate Governance and Microfinance Institutions, July 2018
Paper: Corporate Governance in Microfinance Institutions
Website: The Consultative Group to Assist the Poor (CGAP)
Website: Microfinance Gateway
Caroline Bright | Cairo, Egypt