You are currently browsing the tag archive for the ‘Weathering the Storm’ tag.

> Posted by Danielle Piskadlo, Manager, Investing in Inclusive Finance, CFI

Embed from Getty Images

In recent months several prominent banks in Kenya have collapsed, with Chase Bank (no relation to JPMorgan Chase) most recently placed under receivership by the Central Bank of Kenya (CBK) earlier this month. Additionally, this month it was announced that three majority government owned banks will be consolidated, and that voluntary mergers and acquisitions in the banking industry will be encouraged as a way to strengthen institutions. To better understand what this all means, I sat down with John Lwande, Director of the Africa Board Fellowship (ABF) program.  

DP: From your perspective, can you update us on what is happening?

JL: It appears that following an extended audit tussle last month, Chase Bank, which had established itself as the jewel among small and medium-sized enterprise (SME) lenders in the market, and attracted funding from big name international investors, collapsed on the 7th of April. While Chase pushed the blame towards the accounting surrounding the bank’s Islamic banking assets, more serious implications point towards governance problems. To illustrate the severity of these governance issues, for instance, we are told that the bank made a staggeringly large amount of loans to its directors, an average of KES 1.35 billion per director (USD 13.5 million). This is not a routine staff and associate loan. Actually, Chase had a loan program for staff. Its average loan size was KES 1.9 million (USD 19,000). How could an SME bank, a financial inclusion flag bearer, allow its directors to lend tens of millions of dollars to themselves?! In a recent interview, three leading Kenya bank executives decried the lack of governance and fiduciary responsibility of bank directors in the country and called upon auditors to be firm in their opinions to mitigate the risk of bank failures and avoid panic.

Read the rest of this entry »

> Posted by Andrea Horak, Program Coordinator, 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.

A business can be profitable without strong governance, but can this be sustained? The past has taught us that weak governance practices are often critically detrimental for an institution (see Weathering the Storm and Failures in Microfinance: Lessons Learned). Have businesses and institutions accepted that good governance is positively correlated with profitability? If they haven’t, they should.

The Microfinance Information Exchange (MIX) ran a pilot project in 2011 testing a new set of governance indicators among a sample of 162 MFIs across 57 countries. From the initial findings, the MIX reported that the indicators showed a positive correlation among factors such as the presence of risk management functions, internal auditing, and board committees, suggesting that good governance practices do not exist in isolation.

In “Performance and Corporate Governance in Microfinance Institutions,” Roy Mersland and Reidar Oystein Strom examine the relationship between corporate governance in MFIs and firm performance on social and financial dimensions. In their study, the effects of various board characteristics, ownership types, and the external conditions of competition and regulation on an institution’s client outreach and financial performance are considered. As they analyze each of these relationships, the authors establish that the presence of internal auditors and local directors positively influence the financial performance of MFIs. The MIX data also found a strong correlation between MFIs with executive, risk, and audit committees, and the existence of risk management functions. Of course, as MFIs vary greatly in size, structure, and maturity, it’s also important to recognize that when it comes to governance, one size does not fit all.

Read the rest of this entry »

Enter your email

Join 2,204 other followers

Visit the CFI Website

Twitter Updates

Archives

Founding Sponsor


Credit Suisse is a founding sponsor of the Center for Financial Inclusion. The Credit Suisse Group Foundation looks to its philanthropic partners to foster research, innovation and constructive dialogue in order to spread best practices and develop new solutions for financial inclusion.

Note

The views and opinions expressed on this blog, except where otherwise noted, are those of the authors and guest bloggers and do not necessarily reflect the views of the Center for Financial Inclusion or its affiliates.