Governance & Methodology for the European Code of Conduct for Microcredit Provision in Europe Brussels, Belgium, 17 th December Prof. Karl Dayson, Executive Director, Community Finance Solutions, University of Salford

Gradual shift as MFIs professionalised to move away from subsidy to more sustainable approaches. The change was driven by: –Short life-span microcredit programmes –Increasing size of MFIs –Increased public scrutiny Today numerous guidelines, manuals & several specialised MFI rating systems Background

Questions raised about loan book of Grameen Bank – efficiency by growth strategy Very little discussion about subsidy (Von Pischke) Do they actually help the poor? (Ellerman) Should the focus be on savings & is there a tension between a MFI & its clients (Allen) Impact on client of cost of credit & collection processes (India) Does microfinance crowd out other anti-poverty initiatives? (Bateman) The role of the state in governance (regulation & interference) MFIs: A Crisis of Governance?

Diverse sector yet shouldnt hide similarities Lack of common accounting measures National legal frameworks are very different No agreement on what sustainability looks like or is Access to capital as public money reduces Quality of sector is uneven Lack of policy clarity and what should be the relationship with the banking sector & business advice community Problems facing MFIs in Europe

Consists of 166 clauses and 20 priority clauses Some clauses only applicable to large providers Spread across five chapters –Customer and Investor Relations –Governance –Risk management –Reporting standards –Management Information Systems Content of the Code

Sufficient information to customers Customer rights Avoiding over-indebtedness of customers Customer care Ethical staff & institutional behaviour Customer data protection Investor relations Customer & Investor Relations

Business planning Board responsibilities & membership Management External audit Risk mgmt framework Managing credit risk Managing fraud & security risk Internal audit Governance & Risk Mgmt

Content primarily developed for non-bank providers Non-bank providers sign up to signal that will adapt its practice to Code Providers given 18 months from sign up to comply with Code Subject to external evaluation of Code Must comply with 80% of weighted total of applicable clauses and all priority clauses Clauses weighted according to importance – medium, high & priority Non-applicable clauses: –Size provider –Contradiction national legal framework –Not material to provider Signing up to Code

Overview of process Request to start evaluation from provider Initial contact and queries Sign up to Code Completion & submission self- assessment tool Pre-evaluation phase Implement Code

Overview of process Review justification for non- applicable clauses Check documentati on Review compliance with clauses Submission of recommend ation Evaluation phase

Overview of process Decision on award Provision post-award decision support and advice Provider addresses non- compliance with clauses Amendment s reviewed & decision on award Post-evaluation and post-award phase

Thank you Prof. Karl Dayson Executive Director Community Finance Solutions T: +44 (0)