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A Core Reference Tool Updated: CMEF’s Governance Guidelines

by on Aug 15, 2012  |  posted in Microfinance  |  0 Comments
This was originally posted on the Center for Financial Inclusion blog at ACCION on August 14. Several years ago the Council of Microfinance Equity Funds (CMEF) created a small booklet containing governance guidelines for microfinance institutions.  The booklet quickly became a minor classic: it was translated into multiple languages and dozens of MFIs used it as a guide to operations for their own boards. Then came the 2008 global financial crisis and a number of market-specific microfinance crises in several countries. These crises served to highlight the need for strong, mission-led governance by MFIs. Lessons from these events did not alter the core principles found in the original Guidelines, but they revealed a need for greater attention to areas such as risk management and social performance. In response to these lessons, CMEF is releasing a revised version of the guidelines,“The Practice of Corporate Governance in Microfinance Institutions.” The new Guidelines still address governance basics through topics such as: How to Structure an Effective Board, Effective Board Processes and Board Responsibilities and Decisions.  Among the new or newly expanded topics are:
  • Expanded discussion of the board’s role in upholding the social mission side of the double bottom-line (social performance)
  • Expanded discussion on risk awareness, management and mitigation
  • Incorporation of learning from “Weathering the Storm” on crisis management and from “Aligning Interests” on ensuring that stakeholder interests are properly aligned with institutional interests during times of transformation
  • Introduction of the topic of “responsible exit.”
The Guidelines also reflect the increased sophistication of the microfinance industry as it has evolved over the past decade. Following the Guidelines cannot guarantee good governance, as governance is above all a matter of personal responsibility and interpersonal relationships on the part of every member of a board. But the guidelines reflect the hard-won wisdom of practice from both the microfinance world and the broader financial and corporate sector.  Sincere attempts to fulfill the guidelines will therefore be an excellent strategy for avoiding pitfalls and giving an organization the best possible governance foundation. The guidelines do not propose that “one size fits all” since each MFI ownership structure is different, but they are a map for MFIs to follow. In an uncertain financial world, sound governance is a constantly evolving process. If we are to emerge from recent crises and avert future crises, addressing governance is a critical opportunity that MFIs cannot afford to disregard. Seeking assistance: The updated version of the Governance Guidelines will be translated into Spanish and French but if you would like to volunteer to translate the revised Guidelines into another language, please contact CMEF Coordinator Danielle Donza at ddonza@accion.org. Additional Resource: In the Center’s recently released “Microfinance – A Risky Business: A Time for Strong Leadership,” David Lascelles, senior fellow and joint founder of the Center for the Study of Financial Innovation (CSFI), discusses some of the most important risks that boards should consider. He highlights the importance of strong governance and managing risk at all times, not just during crisis. In fact, effective board oversight of risk should help to anticipate and avert crises. For a copy of the publication, please click here. Image credit: youthmaster.blogspot.com

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