Governance Challenges in MENA Microfinance Institutions

> Posted by Miranda Beshara and Natasha Tynes, Editorial Team, CGAP Arabic Microfinance Gateway

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Microfinance in the Middle East and North Africa (MENA) is currently facing a number of challenges that are stifling its growth. On November 19, we attended the Governance Working Group (GWG) call on governance challenges in microfinance institutions (MFIs) in the Arab region organized and hosted by Accion’s Center for Financial Inclusion (CFI). A total of 11 participants representing global MFI governance expertise and initiatives discussed key governance challenges facing MFIs in the region – many of which we captured for the CGAP Arabic Microfinance Gateway while live tweeting from the call.

Several of the call participants were recently engaged in the provision of technical assistance to MFI boards in the Arab region. Karla Brom, a financial consultant, gave a corporate governance workshop at Sanabel’s tenth annual conference. She noticed that risk management and its relation to governance is a key challenge facing the sustainable growth of many MFIs in the region.

Lynn Exton, another consultant working in the region, highlighted that many MFIs suffer when it comes to board structure and practice. For example, she pointed out that women’s participation in boards in the region is low. Other participants also noted that the separation of duties and powers between board and management and the delegation of authority are not well practiced across the region.

“In some countries in MENA, board members are over extended with some belonging to up to 25 different boards in some instances,” commented David Risser from Nestor Advisors on MFI board membership in the region. This is all further compounded by the prevailing legal structure of MFIs in the region (i.e. mostly NGOs), which inherently have neither the mandate nor the culture for good corporate governance, several participants pointed out.

Despite those challenges, there is an increasing awareness that boards should become more professional, create better agendas, and adhere to international best practices in order for MFIs to be able to fulfill their mission, expand their outreach, protect their assets, and tap into various sources of financing, noted the participants during the call.

Zubyr Soomro, CEO of Hikmah Consulting added that in order to build governance in the region, networks and membership associations “need to focus more on industry and systemic governance issues and for (influential stakeholders) to spur the building of good governance.”

Several resources were shared at the end of the call. The Social Performance Task Force (SPTF) is in the process of finalizing a collection of materials on social performance for boards. This packet would be very useful in creating concrete metrics on double/triple bottom line performance for MFIs. CFI has recently announced the Africa Board Fellowship, a program based on peer-to-peer learning and exchange among MFI leadership in sub-Sahara Africa and that could be replicated in other regions if it proves to be effective. There is also the CFI’s LinkedIn group “Managing Governance Risk in Microfinance” for additional resources and peer exchange on the topic.

Lastly, don’t forget to also check out the available resources on governance in MFIs on the Microfinance Gateway in EnglishSpanish, French, and Arabic!

Have you read?

Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?

Microfinance in Azerbaijan: Who Is Not Invited to the Party?

Microfinance Corporate Governance: Is It Special? (Part One)