European Microfinance Conference 2009

1. European Microfinance Conference 2009 Microfinance and its growth in Europe: Consequences, challenges, opportunities Workshop: “The governance of Microfinance Organizations in Europe: a Motor or a Brake for growth?” Christian Baron – June 2009

2. Gret, Cerise Who are we ? • A French development NGO, • Projects Implementation / Short Term Expertise / Public Policy / Diffusion of references • Working Experiences in more than 40 developing countries • 90 employees and volunteers in France and abroad • Six thematic departments, among them a Microfinance and Small Enterprise Department involved in Microfinance, Micro insurance and BDS activities • Promotion and support to MFIs that have been institutionalized as Limited Companies (Cambodia, Mexico, Mauritania, Madagascar) • www.gret.org to know more about us • Member of Cerise, a French Microfinance Network that has worked on MFIs Governance in 2003/2005

3. Main Lessons from Cerise work on GovernanceHandbook for the analysis of the governance of MFIshttp://www.cerise-microfinance.org/http://www.cerise-microfinance.org/pdf/En/handbook_analisis_governance_mfi.pdf

4. From Shareholders to Stakeholders • Governance is not only related to the Board of Directors or to the relationship between BoD and shareholders  a stakeholder analysis is necessary • Stakeholders : owners, directors, staff, partners, technical service providers, clients (borrowers and depositors), etc. • There is no “one-fit-all” governance solution • Dysfunctions and crisis may be a good source of learning to assess the governance of an MFI

5. Three main questions • Whatever is the choice regarding the legal status and the governance system, there are three main questions to raise : • Who has the decision making power among the stakeholders ? • How is this power exercised ? • How are problems and crisis dealt with ?

6. The foundation for a good governance  Six fundamental elements • A shared strategic vision among all stakeholders • A reliable and timely MIS • A clear well adapted and coherent decision making process • Presence of adequate trainings and skills • An efficient monitoring system • An effective crisis prevention and management

7. A shared strategic vision among all stakeholders • Explicit strategic vision (target public, products and services, geographical outreach, etc.) • Strategic vision formalized in founding texts • Strategic vision consistent in founding texts and business plan • Strategic vision understood and shared by all the stakeholders (elected people, staff, etc.) • Strategic vision coherent with the institutional context

8. A reliable and timely MIS • Information is complete at all levels of the institution (Field level  HQ  BoD  GA + Central Banks + lenders + etc.) • Availability of portfolio and financial indicators (how long does it take to get the information ?) • Quality and reliability of the MIS • Accessibility of the information • Use of information in the decision- making

9. Clear, well-adapted and coherent decision making process • Formalized decision making process in manuals of procedures (preparation  decision  implementation  control) • Coherency between the formal decision making process and the real one • Coherence between the stakeholders and the level of decision-making • Prevention and good management of conflict of interests • Accountability of decision makers

10. Adequate trainings and skills • Coherence between training / specialization and responsibilities held • Existence of an internal training program • Existence of incentives / disincentives for executing decisions • Coherency between technical / financial means available and institutional strategy • Ability to execute decision without external assistance

11. An efficient monitoring system • Clearly defined monitoring chain • Widespread understanding of the monitoring chain by all stakeholders • Ability to detect problems and anticipate risks • Independent, competent and regular audits • Availability of monitoring and auditing reports (written documents)

12. Effective crisis prevention and management • Internal capacity to detect problems (ICS and Internal Audit) • Efficient warning system (time between beginning of a problem and its discovery) • Ability to react quickly and proportionally (time between discovery and reaction) • Existence of a response plan • Ability to modify rules and procedures

13. Some other lessons learnt • Governance and access to financial resources  Lenders need to understand the governance of an MFI and to be sure that it works well • Governance and staff policy  the incentive system may play a role to strengthen the governance depending on the criteria that are used to appraise the performance of the staff (ex : ICS) • Governance and social performance  a SP assessment and monitoring system is a useful tool • Governance and crisis  a good governance system may not allow to avoid crisis but to solve them • Evolution of the governance / Evolution of the MFI  good governance is a permanent challenge