The following post was originally published on the Microfinance Gateway.
As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks.
The Center for Financial Inclusion at Accion has recently announced a partnership with The MasterCard Foundation to launch the Accion Africa Board Fellowship program. The new program will promote peer-to-peer learning on governance and risk management practices at financial institutions that serve low-income clients in sub-Saharan Africa, a region with more than 6.6 million microfinance clients.
We spoke with Beth Rhyne (left), Managing Director of the Center for Financial Inclusion at Accion, and Ann Miles (right), the Director of Financial Inclusion at The MasterCard Foundation, to learn more about their vision for the program.
Good governance helps an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. Why do you think the microfinance industry in Africa needs such a program at this time?
Miles: Good governance begins at the top of any organization. The policies that are set, and the signals that are sent, by board members and CEOs permeate throughout an organization. They are a major component, perhaps the major component, in determining how an organization succeeds in its given mission. So, how a board does its work is critically important, and it’s something that we at The MasterCard Foundation care about a lot.
The Foundation’s programs in Financial Inclusion are focused on sub-Saharan Africa. Levels of financial inclusion there are some of the lowest in the world and microfinance institutions, as well as other financial services providers, are challenged to reach unbanked clients because of weak infrastructure and high operating costs. New models which use mobile technology are increasingly playing an important role in reaching these excluded populations.
These developments will challenge microfinance institutions in Africa. Their profitability measured by Return on Assets as reported by the MIX is the lowest when compared to other regions in the world. In the Microfinance Banana Skins Report for 2014, governance ranked as the second highest risk compared to its overall ranking of five for the industry as a whole. Finally, no African microfinance institutions have yet been Smart-Certified by the Smart Campaign. All of these facts speak to the need for improved governance which will, in turn, improve the performance of these organizations. Their sustainability is important for clients.
How did the Fellowship program come about?
Rhyne: The Center for Financial Inclusion has been following governance as an issue for several years, through the Financial Inclusion Equity Council, as well as research indicating that governance is a top risk in the industry, and has been the differentiating factor of institutions that survived episodes of crisis.
We observed that board members have few opportunities for exchange with others outside their own institutions, so we decided to design a program that would create a space for board members to work on improving governance with others who were facing similar challenges. We tested the concept of peer exchange among board members in a pilot seminar, “Governance Leadership in a Competitive World,” in Mexico, and found that board members appreciated and responded to the peer exchange concept.
Before designing the ABF program, we conducted an assessment of the governance and risk challenges of MFIs in Africa. Responses were collected from high-level microfinance stakeholders in 15 countries. Respondents highlighted managing sustainable growth, succession planning, and technology trends as three top areas of focus. They were also enthusiastic about participating in the program.
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