1. 13.12.2015 Seite 1 Seite 1 Corporate Governance for Microfinance

2. 13.12.2015 Seite 2 Page 2 Why Corporate Governance? 1  Separation between ownership and management  The principal-agent problem  information asymmetry  incomplete contracts  moral hazard

3. 13.12.2015 Seite 3 Page 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. 13.12.2015 Seite 4 Page 4 Two models of Governance Shareholder Centric Stakeholder Centric Short and long term value creation for shareholders Hard-nosed commercial profitability Single tiered board (no separate supervisory board) Value maximization for a broader set of stakeholders The organization is seen to have a public responsibility Emphasis on long term growth Two-tiered board (separation of the executive board and supervisory board

5. 13.12.2015 Seite 5 Page 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. 13.12.2015 Seite 6 Page 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. 13.12.2015 Seite 7 Page 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. 13.12.2015 Seite 8 Page 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. 13.12.2015 Seite 9 Page 9 Appropriate relationship between the board and management? The function of the board is leadership AND oversight- but not micromanagement.

10. 13.12.2015 Seite 10 Page 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. 13.12.2015 Seite 11 Page 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. 13.12.2015 Seite 12 Page 12 What is the cost of good governance?  Monitoring costs  Training costs  Enforcement costs

13. 13.12.2015 Seite 13 Page 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