GOVERNANCE: ORGANIZING, DEVELOPING AND EMPOWERING BOARDS TO OVERSEE MFI OPERATIONS

Governance is still a relatively new concept in microfinance and its evolution is characteristic of the challenges that industries face as they develop. Typically, emerging industries go through various stages of governance awareness. At start up, businesses are preoccupied with vision setting, setting up systems, mobilizing resources and developing market entry strategies. At this stage, scant attention is paid to governance. At the next stage organizations are concerned with balancing growth with profitability. As the organization matures and new owners enter the business, then governance issues begin to emerge. In many countries, the microfinance industry has evolved through these stages and has now entered the maturity stage where commercialization, regulation, consumer awareness and competition are creating pressure for more transparency and accountability. Whereas, there is growing awareness about the need for effective governance in microfinance institutions, it has not attracted the same level of concern and scrutiny as other issues that are considered critical to the development of microfinance development (growth capital, outreach, sustainability, impact). Governance is the least discussed, least researched and least funded issue in the microfinance development arena. Funding is available for product development, innovations, commercialization, transformation, regulation, capacity building, but virtually no funding dedicated to strengthening of governance structures and systems in microfinance. There is virtually no research on the impact of governance on microfinance institutions (The last paper on governance was posted on the microfinance gateway in 2004 while the last authoritative publication on governance in MFIs institutions was in 7 19983 . And yet, poor governance is the greatest risk that threatens the sustainability and viability of the microfinance industry. There is compelling evidence that poor governance is perhaps the major cause of the collapse of many MFIs in Africa. The following examples illustrate some of the common governance problems in MFIs.

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