European Microfinance Conference 2009

Microfinance and its growth in Europe: Consequences, challenges, opportunities

Workshop:

“The governance of Microfinance Organizations in Europe: a Motor or a Brake

for growth?”Christian Baron – June 2009

Gret, Cerise Who are we ?

• A French development NGO, • Projects Implementation / Short Term Expertise / Public Policy /

Diffusion of references• Working Experiences in more than 40 developing countries• 90 employees and volunteers in France and abroad• Six thematic departments, among them a Microfinance and

Small Enterprise Department involved in Microfinance, Micro insurance and BDS activities

• Promotion and support to MFIs that have been institutionalized as Limited Companies (Cambodia, Mexico, Mauritania, Madagascar)

• www.gret.org to know more about us• Member of Cerise, a French Microfinance Network that has

worked on MFIs Governance in 2003/2005

Main Lessons from Cerise work on Governance

Handbook for the analysis of the governance of MFIs

http://www.cerise-microfinance.org/ http://www.cerise-microfinance.org/pdf/En/handbook_analisis_governance_mfi.pdf

From Shareholders to Stakeholders

• Governance is not only related to the Board of Directors or to the relationship between BoD and shareholders a stakeholder analysis is necessary

• Stakeholders : owners, directors, staff, partners, technical service providers, clients (borrowers and depositors), etc.

• There is no “one-fit-all” governance solution• Dysfunctions and crisis may be a good source of

learning to assess the governance of an MFI

Three main questions

• Whatever is the choice regarding the legal status and the governance system, there are three main questions to raise :– Who has the decision making power among the

stakeholders ?– How is this power exercised ?– How are problems and crisis dealt with ?

The foundation for a good governance Six fundamental elements

• A shared strategic vision among all stakeholders• A reliable and timely MIS• A clear well adapted and coherent decision making

process• Presence of adequate trainings and skills• An efficient monitoring system• An effective crisis prevention and management

A shared strategic vision among all stakeholders

• Explicit strategic vision (target public, products and services, geographical outreach, etc.)

• Strategic vision formalized in founding texts• Strategic vision consistent in founding texts and

business plan• Strategic vision understood and shared by all the

stakeholders (elected people, staff, etc.)• Strategic vision coherent with the institutional context

A reliable and timely MIS

• Information is complete at all levels of the institution (Field level HQ BoD GA + Central Banks + lenders + etc.)

• Availability of portfolio and financial indicators (how long does it take to get the information ?)

• Quality and reliability of the MIS• Accessibility of the information• Use of information in the decision- making

Clear, well-adapted and coherent decision making process

• Formalized decision making process in manuals of procedures (preparation decision implementation control)

• Coherency between the formal decision making process and the real one

• Coherence between the stakeholders and the level of decision-making

• Prevention and good management of conflict of interests

• Accountability of decision makers

Adequate trainings and skills

• Coherence between training / specialization and responsibilities held

• Existence of an internal training program• Existence of incentives / disincentives for executing

decisions• Coherency between technical / financial means

available and institutional strategy • Ability to execute decision without external

assistance

An efficient monitoring system

• Clearly defined monitoring chain• Widespread understanding of the monitoring chain by

all stakeholders• Ability to detect problems and anticipate risks • Independent, competent and regular audits• Availability of monitoring and auditing reports (written

documents)

Effective crisis prevention and management

• Internal capacity to detect problems (ICS and Internal Audit)

• Efficient warning system (time between beginning of a problem and its discovery)

• Ability to react quickly and proportionally (time between discovery and reaction)

• Existence of a response plan• Ability to modify rules and procedures

Some other lessons learnt

• Governance and access to financial resources Lenders need to understand the governance of an MFI and to be sure that it works well

• Governance and staff policy the incentive system may play a role to strengthen the governance depending on the criteria that are used to appraise the performance of the staff (ex : ICS)

• Governance and social performance a SP assessment and monitoring system is a useful tool

• Governance and crisis a good governance system may not allow to avoid crisis but to solve them

• Evolution of the governance / Evolution of the MFI good governance is a permanent challenge