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> Posted by Deborah Drake and Andrea Horak, Vice President/Program Manager and Program Coordinator, Investing in Inclusive Finance, CFI
The Investing in Inclusive Finance program at the Center for Financial Inclusion at Accion explores the practices of investors in inclusive finance. Across areas including risk, governance, stakeholder alignment, and fund management, this blog series highlights what’s being done to help the industry better utilize private capital to develop financial institutions that incorporate social aims.
With good governance a top priority for investors, donors, and regulators, it’s time to ask exactly what good governance looks like. A recent debate about the Anglo-American (shareholder) versus the European (stakeholder) models of governance set out to answer that question. The Governance Working Group (GWG), a 25-member group of microfinance professionals focused on governance, hosted by CFI, sponsored a webinar to discuss the characteristics of the two models and their implications for microfinance institutions, equity funds, and clients.
Lauren Burnhill of One Planet Ventures started off the debate by describing the model of single tier governance commonly used in the U.K. and U.S. In this model, each company has a single board that includes both executive directors, who are employed by the company or have significant ties to its corporate management, and non-executive directors who have no direct relationship with the company or its management. The company CEO may serve as chair of the corporate board, in which case a great deal of power is invested in that board position. The overarching duty of the board is to protect the interests of shareholders. In this model, particular importance is given to the protection of minority shareholder rights.
> Posted by Lauren Burnhill, Managing Director, One Planet Ventures
If social change is hard to achieve, raising funds for innovative programs that target social change is twice as difficult, but things are looking up! Recently, the White House Office of Social Innovation announced a proposed change in the rules governing program related investments (PRIs) made by foundations.
Every microfinance, social impact or environmental group that has tried to mobilize foundation resources for innovative concepts, pilots or ventures knows how difficult it is to access PRI funding. For fear of endangering their tax status, most foundations have exclusively focused on making grants to non-profit organizations.
In other words, under existing regulations, foundations believe themselves limited to making grants or supporting studies and research related to social enterprise and the impact investment industry. Yet when we look at obstacles to catalyzing private investment, there is a strong need to find actors that can change the risk profile associated with funding these activities, in order to facilitate the entry of new private investors. Foundations seem like a logical candidate to play this role, but until now, they have not felt empowered to do so. Read the rest of this entry »
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