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Handbook for the Analysis of the Governance of Microfinance Institutions

Topic :

Organisations providing microfinance through a variety of approaches have proved they are capable of bringing financial services to populations excluded from the traditional banking sector but nevertheless continue to face challenges relating to institutionalisation and sustainability. The sustainability of an MFI demands not only financial viability but also the ability to adapt to legal frameworks, to develop a strategic vision and create an organisation that is transparent, efficient and accepted by all the stakeholders involved. These issues can be grouped together under the concept of “governance”. Governance in microfinance is situated at the crossroads of two approaches: a political / ethical approach, which emphasises the strategic vision of the institution, the legitimacy of its decision-makers and the integration of the institution into its environment; and an economic / managerial approach, which regards governance as a way to improve efficiency, reduce costs and optimise means.

This handbook has been written primarily for the elected officials and directors of institutions, but will also be useful to donors and consultants. It is relevant to all microfinance institutions regardless of their stage of development or legal status (non-profit organisation, project, private company, commercial bank, cooperative, village bank, etc.). The book has been organised into two modules:

  1. A diagnostic tool for evaluating governance of an MFI.
  2. A review of key issues and challenges in governance.

The two modules are complementary and are organised around five themes: Mission / vision, Financing, Institutional type, Stakeholders and Organisation.

The diagnostic tool is a clear and well presented checklist of questions accompanied by definitions and explanations. It is very well written indeed and will encourage reflection on really fundamental questions such as:

  • Who has the decision-making power?
  • Who owns the capital?
  • Which stakeholders make which decisions?
  • How are decisions made?
  • How are crises or problems managed?

A variety of matrices are suggested to facilitate analysis and the reader is pointed at the relevant sections of the second module for further guidance and explanation. The key topics in module two include:

  • Defining the mission: socially or commercially oriented?
  • Financing and governance: what role should the funders play?
  • Institutional type and governance: what makes the most sense?
  • Growth: a virtuous or vicious circle?
  • Multiple stakeholders: how to reconcile contradictory interests.

Throughout this section there are illustrative case studies and examples and tables containing concise summaries of critical points.

Building effective governance or making changes in the light of governance problems are not challenges that can be resolved overnight. Even when a form of governance works, it is not fixed in stone and must evolve in parallel with the institution and its environment. This handbook is highly recommended as a source of reference for all those involved in the practice of managing or guiding financial institutions addressing the microfinance market.

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