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Corporate Governance for Microfinance

Corporate Governance for Microfinance. Why Corporate Governance? 1. Separation between ownership and management The principal-agent problem information asymmetry incomplete contracts moral hazard. Why Corporate Governance? 2. The Board minimizes Agency risks

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Corporate Governance for Microfinance

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  1. Corporate Governance for Microfinance

  2. Why Corporate Governance? 1 • Separation between ownership and management • The principal-agent problem • information asymmetry • incomplete contracts • moral hazard

  3. Why Corporate Governance? 2 • The Board minimizes Agency risks • A system for the direction and control • For shareholders and non-shareholders (depositors, etc.)

  4. Two models of Governance

  5. Two models of Governance A MFB board must be a stakeholder board because MFBs are managing public funds and are there to serve the poor and those who have been excluded from financial services. There is no other justification for a enabling a bank to be established with a very low capital requirement apart from banking on proximity and local knowledge that bridges the information between the bank and its customers.

  6. Roles and responsibilities of the Board for good governance • Vision, Mission and Values • Strategy with quantified objectives • Hire top management and evaluate performance

  7. Roles and responsibilities of the Board for good governance • Monitor risk management and internal controls • Promote awareness of the mission and values • Establish a two tiered board with gender sensitive structures • Disclosure to shareholders and stakeholders

  8. Roles and responsibilities of the Board for good governance • Ensure accurate financial reporting • Undertake an annual review of mission, strategy, risks, SPM (single report format) • Insist on the double bottom line with SPM

  9. Appropriate relationship between the board and management? The function of the board is leadership AND oversight- but not micromanagement.

  10. What are the major governance problem areas in Nigerian MFBs? 1 • Loans to insiders and related parties • Nontransparent hiring practices • President keeping the cheque book • Political party influence

  11. What are the major governance problem areas in Nigerian MFBs? 2 • Manipulated reporting • Concentrated ownership structure - one owner bank with and no stakeholder representation • Infrequent board Meetings • Absence of Social Performance Monitoring

  12. What is the cost of good governance? • Monitoring costs • Training costs • Enforcement costs

  13. What are the benefits of good governance? • Good reputation (client retention and increase) • Fairness in lending practices • Transparency in reporting financial results • Asset protection • Value creation for shareholders and stakeholders

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