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.
To read the rest of this post, visit the Microfinance Gateway.
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CFI and The MasterCard Foundation Launch the Accion Africa Board Fellowship Program
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December 4, 2014 at 2:59 pm
John Gitau
Perhaps, identifying a few champions within the sector from across the globe and capacity building them to show case best corporate governance practices can also help. Frameworks and their workings are best exemplified. In most cases, the deviations we witness in governance do not result from the ignorance of frameworks or even absence of peer reference. The quality of board members, selection criteria, vested interest, apathy, purpose asymmetry and so forth more often than not sabotage missions.The causes of these ills need to be addressed first.
Also, the autonomy of boards in defining their visions and missions complete with guiding policies means that they do the best their brains can allow at any time. This means they get tied to their craftmanship, feeling great about their corporate parenting. Up to that time, theirs is a micro paradigm, complete with beliefs, attitudes, values, convictions and whatever else that comes with entrenchment or falling in love with what one has created. Even when their corporate boats capsize, they die clinging onto their babies. That is what commitment to what one has created means.
Peer to peer learning is great, as long as rendezvous sessions are not turned into getaway corporate spas for ego massages, culinatherapy, spendicure, papers-tissue, intellectual prowess competition scrubs, boisterous waxing or even ignorance detox.
On another note, it is curious how governance is picked as the primary culprit in the dismal performance of microfinance in Sub-saharan region while leaving out the dearth of pro-poor product design skills and the high cost of outreach to the unbanked.
The problem with the top bottom approach that microfinance institutions adopt ( and that is why corporate governance is picked out as the weak link) is that what the hegemony designs and prescribes for the unbanked is completely out of line with what they, as customers need. Equity Bank in Kenya is a good example of what to start with when reaching out to the unbanked. It was almost a one man show with the passion to serve the neglected taking centre stage. The current CEO was the salesman, PR, accountant and had to make decisions without the benefit of a modern type board. Now Equity Bank can afford the luxury of a smart board as it has the millions of customers to serve.
To the current boards of microfinance institutions in Sub-Saharan Africa, you are advised to climb down from your ivory towers, fold your sleeves and get down to the unbanked terrains and bring them on board. Do not just sit in your air-conditioned offices, swiveling chairs and feeling great just because you have discussed a few strategies and endorsed a couple of policies. You need to deny Ms Miles the opportunity to point out at your pathetic performance and leadership in failure ( how does it make you feel when your region is described as having some of the lowest financial inclusion levels in the world. You need to decline your allowances next time until this picture is reversed)
Corporate governance presence or lack it may just be an excuse to justify paralysis. That doesn’t mean it isn’t important. It is its prioritization that is misplaced while outreach is overshadowed. Not unless we are saying, put corporate governance in place then go for the unbanked. That won’t work. That is what Family Bank tried in Kenya, wanting to look smart and posh. But that was what created the paralysis that has seen it struggle over the years to reach Equity’ Bank’s level of customers holding. Kenya Women Finance Trust (KWFTB) perhaps the second largest microfinance bank had its lone ranger founder knocking thousands of doors of the unbanked women. It was only much later that they constituted a cute board. Emphasis on corporate governance is putting the cart before the horse, my opinion.
Now, over 6.6 million customers in Sub-Saharan region is a very low threshold when Equity Bank single-corporately serves over 7 million customers in Kenya alone, most of whom are served micro-loans. But that is not a big deal. The big deal is that while Equity is certified smart in Kenya for financially including 35% of the country’s adult population, it isn’t Smart -Certified (or it hasn’t applied?). Equity is also a paragon of corporate governance and if profitability is a sister metric, then it gets both accolades.
Before I forget, I would like to thank Mastercard Foundation for its leadership in supporting financial inclusion initiatives across the world. Your support for Equity Banks, financial inclusion initiatives in Kenya has made a huge difference to the poor and their children who for the first time have been given Wings to Fly! Keep it up!
Disclaimer: I don’t work for or with Equity Bank and have absolutely no relationship except a bank account with them.