Ragab KAYASTHABreakway Sessions: Practices in

Microfinance

February 14, 2010

Microfinance Summit Nepal 2010

to learn more about the microfinance (MF) in Nepal.

to know the practical aspect of MF to widen the knowledge on it.

to share my few ideas on governance microfinance.

Around 80 percent of the population lives in the rural area of the country

GDP growth of Agricultural sector is 1.0 percent (ADB, 2007)

before the Ninth Plan 42% → after the Tenth Plan 31%

1950s – first credit cooperatives 1970s- SFDP, IBP 1990s- GBBs, MFDBs, FINGOs, SCCs

Microfinance Governance Governance is the process by which a

board of directors, through management, guides an institution in fulfilling its corporate mission and protects the institution’s assets over time

In the microfinance field, governance has assumed increasing importance for several reasons. Those are:

The Rubber-Stamp Board The Hands-on Board The Representational Board Multi-Type Board

Board and management deal with the same issues, but at different levels.

The board deals with policies while management deals with practical implementation.

The relationship between the board and management is defined by partnership, particularly between the board chair and managing director

Effective governance requires boards to focus on three major areas of responsibility:

i) management accountability, ii) strategic planning and policy-

making, and iii) self-regulation

Banks and Financial Institutions Act 2006 (BAFIA)

Co-operative Act (1992) Financial Intermediary Societies Act

(1998) Microfinance Policy (2007)

Complicated legal procedure Strange legal framework Gap between commitment and

practice Announcement of unsuitable policies

of the Government of Nepal

It is necessary to have good microfinance governance, but also it need good governance to guide the appropriate operating environment for the MFIs.

Effective governance strikes the appropriate balance in the relationship between a board of directors and management in their combined efforts to move the institution forward. Moreover, a clear articulation of the function of microfinance boards is essential for their effective governance.