Note from CAPAF: Improving Microfinance Governance

The operational and financial sustainability of a microfinance institu-tion (MFI) requires, among other things, a clear strategic vision and an organizational structure that is transparent, efficient and accepted by all the stakeholders involved. These key issues are grouped together under the concept of “governance”¹. Governance, in the broad sense of the term, includes all stakeholders (employees, managers, elected officials, clients, donors, financial partners, shareholders, government agencies, etc.) and is not limited to the relationship between an MFI’s board of directors and its managers.

 

 In francophone Africa, governance remains a particular challenge for MFIs mostly because of their organizational and legal structure: many of them were established with a cooperative model of governance and/or have recently transformed from donor projects to licensed financial service providers. The focus over the past 15 years on im-proving MFI management capacity has advanced financial and opera-tional management, but there has been little or no impact on the way MFIs are governed. MFIs commonly face the following challenges re-lated to governance:

• The board is involved in day-to-day operational management rather than delegating to technical staff

• Organizational tensions arise when technical personnel are unable to apply internal controls to actions of the board

• Weak by-laws outlining the relationship between member cooperatives and the central apex institution induce member coop-eratives to pull out.

 

USAID joined forces with CAPAF² IRAM³and CERISE⁴to create a training course for MFIs to assess their governance by analyzing three key factors: (1) the stakeholders involved; (2) their decision-making process; and (3) their crisis management capacity. Following the training, MFIs are better able to assess their strategic options and address challenges to good governance.

 

This partnership took advantage of CAPAF’s extensive experience with adult learning methodology, as applied to microfinance practitioner needs, and IRAM’s research and technical experience in developing an analytical tool for MFI governance. The course incorporated scenarios from case studies developed by CERISE, elements from the IRAM analytical tool, as well as exercises and situation-based role playing. CAPAF held three successful trainings of trainers (TOTs) in 2007 (two in Mali and one in Cameroon) with participants from 12 countries: Benin, Burkina Faso, Cameroon, Congo, Democratic Republic of Congo, Guinea-Bissau, Haiti, Madagascar, Mali, Senegal, and Togo. As a result of the training, participants have now begun offering the governance course to MFIs in their local markets, with the first courses taking place in Guinea-Bissau, Mali, Senegal, and Haiti.

 

According to Ann Wessling, CAPAF’s Director, there are several challenges to the roll-out of the governance course. CAPAF’s strategy requires supervision of the first training sessions of new courses and coaching of new trainers by either CAPAF staff or certified resource people. However, scarce human and financial resources limit CAPAF’s ability to maintain this level of quality control across the 17 countries in which it works. Moreover, there are challenges specific to the issue of governance itself. First, governance touches on many aspects of an institution and deals with sensitive information, which can exacerbate internal politics and conflict.

 

Second, the sensitive nature of governance issues requires trainers who are perceived as neutral and independent. It can be difficult to identify competent neutral consultants with no MFI affiliation and with the necessary skills and experience in microfinance. Other more technical CAPAF courses tend to be politically neutral, which allows for a large pool of potential trainers that may even include current MFI employees.

 

 Thirdly, those MFIs in greatest need of governance training often do not recognize or are not aware that they should attend. Likewise, the prevalence of cooperative structures in francophone Africa with many illiterate board members requires creativity and adaptability when communicating key governance messages.

 

 As the course is rolled out, CAPAF will continually adapt it to specific settings. This is important to make sure the messages are understood, accepted, and applied. CAPAF will continue to support ToTs for the governance course through 2008 as well as promote local course offerings in new countries such as Burundi, DRC, and Rwanda.

 

MFI governance is also an important issue for donors and policy makers. To address this need, CAPAF offers short presentations and workshops on the topic. The technical material for the TOT course draws from several resources including:

• CERISE/IRAM “Handbook for the analysis of the governance of microfinance institutions” developed in collaboration with IFAD and GTZ

 • USAID’s Microfinance Best Practices handbook entitled “Principles and Practices of Microfinance Governance” produced in collaboration with ACCION

 • CGAP’s Focus Note number 7 “Effective Governance for Microfinance Institutions”

 • WOCCU’s “Governance Principles” • SEEP’s financial performance monitoring manual “Financial Performance Monitoring: A Guide for Board Members of Microfinance Institutions”.

All of the technical support materials for the governance course available in French are posted on the CAPAF website at http://www.capaf.org/pages/Gouvernance.html.

 Information about other CAPAF activities, trainers/consultants and courses is also available on the website www.capaf.org.