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> Posted by Lizzy Bolze, CFI Analyst, with contributions from Alex Silva, Calmeadow Foundation
Are you a microfinance institution in the Middle East or North Africa (MENA) region? Would you like to improve your bottom-line and attract more investors? Here is one simple trick: improve your governance! A recent International Finance Corporation (IFC) paper focusing on MENA, Corporate Governance Success Stories, concludes that “good corporate governance can help companies improve their [financial] performance and gain access to capital,” and various stakeholders, such as institutes and regulators have been actively promoting strong corporate governance in the MENA region. As a result many MFIs in MENA have experienced an increase in access to finance, higher profitability, a reduction in organizational inefficiencies, and an increase in impact on sustainability, among other important growth factors.
One such MFI is the Pakistan-based NRSP Microfinance Bank, which went through a rigorous transformation in 2007 and set goals to improve corporate governance. NRSP focused on restructuring board and management roles, establishing board committees and governance policies, and developing a risk management framework with internal audit functions. Within two years of implementing these governance changes, NRSP saw a $1.7 million profit in the first year, a credit rating improvement from “stable” to “positive”, and an increase in board effectiveness with the inclusion of women and independent directors. At the same time its ability to leverage equity increased. Access to finance grew to four times equity.