>Posted by Deborah Drake, Vice President and Program Manager, CFI
The following post by Deborah Drake was recently featured in the Corporate Governance and Microfinance series on the CGAP Microfinance Blog. The post highlights the release of this year’s Microfinance Banana Skins report, “Staying Relevant,” providing background on the annual Banana Skins report series and an overview of this year’s edition. In investigating the series’ subject of risk in the microfinance industry, this year’s report found a pressing importance on managing corporate governance risk.
The post begins:
This year’s Microfinance Banana Skins is aptly titled “Staying Relevant.” The fourth in the series, each year the Banana Skins report reflects not only the perceptions of industry actors but stands as a commentary on the evolution of the microfinance sector itself.
From the inaugural survey “Risk in a Booming Industry” (2008) to “Confronting Crisis and Change” (2009), and “Losing its Fairy Dust” (2011) to this year’s report, David Lascelles, survey editor, has provided us “a reading of the tea leaves” of how transformations in the industry show up in the way industry players perceive risks. This year’s report shows how much new players and other external forces are disrupting the once-comfortable microfinance community. New players such as mobile network operators and commercial banks are increasingly serving low income clients. MFIs are dealing with the impact of changing and increasing regulation. Lascelles comments that “these results tell us that microfinance will need to adapt to remain relevant in a much more difficult marketplace.” This should give all of us food for thought and inspire us with a sense of urgency.
We must take advantage of these “beacons” or harbingers of change to navigate successfully the industry’s turbulent waters and thus avoid the “hazards” and use of life rafts described colorfully in the CFI publication on MFIs in crisis “Weathering the Storm.”
Now more than ever, as the industry undergoes this period of rapid change and innovation, MFIs must ensure they have strong boards which can provide the bold strategic leadership and guidance they will require to adapt and stay relevant. The board’s fundamental role in setting risk strategy is being put to the test in this fast-changing world. It isn’t just a matter of putting in place a risk strategy but reviewing and adjusting that strategy on a regular basis. Author David Lascelles argues in the CFI publication “Microfinance – A Risky Business, A Time for Strong Leadership”, that setting a risk strategy “should be a continuous process: risks never sit still; new ones appear; old ones take new forms; risk appetite can change when markets change.”
Read the rest of the article on the CGAP Microfinance Blog.
Image credit: CGAP
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