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The Practice of Corporate Governance in Microfinance Institutions

Council of Microfinance Equity Funds

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Abstract

In 2005, the Council of Microfinance Equity Funds (CMEF) published “The Practice of Corporate Governance in Shareholder-Owned Microfinance Institutions.”

These “Governance Guidelines” were originally developed for two reasons:
• Lack of guidance tailored specifically for microfinance institutions (MFIs). While many of the principles of governance are the same for all types of institution, MFIs have special characteristics that bear directly on governance.
• To get beyond generalizations to the practical issues that boards actually face. While governance is an arduous process requiring diplomacy, insight, and even at times courage, it is easy for statements about governance to offer bland bromides.

The Governance Guidelines have since been widely used and highly regarded as an excellent source for governance information within the microfinance industry.

Over the past seven years, much has changed in the field of microfinance, and good governance has become increasingly important. The Council has therefore updated this reference document to reflect new thinking and resources that have emerged in the microfinance industry around governance since the original version was published.

These updates were developed after consultation with fund investors and corporate governance experts, who shared the wisdom of their experiences.

This document was drafted by Danielle Donza of the CMEF and Accion based upon this consultative process. The CMEF is particularly thankful for the time and feedback provided by Ira Lieberman of LIPAM International, Elisabeth Rhyne of the Center for Financial Inclusion (CFI) at Accion, the original authors of the guidelines, as well as Alex Silva of Omtrix Inc., Miguel Herrera of Accion’s Frontier Investments Group (FIG), and David Dewez of Incofin.

While the original guidelines have not altered significantly, new or expanded guidance is provided in the areas of:
• Legal structures and formal documentation
• Social performance management
• Alignment of incentives
• Responsible exits
• Risk and crisis management

Many new publications related to MFI governance have now been added as references (see Annex 1). The CMEF hopes this statement will contribute to an active process of improving governance among the institutions CMEF members invest in, and in the microfinance industry as a whole.

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