Microfinance and its Effective Governance
This paper evaluates factors necessary for the effective governance of microfinance. Although microfinance has emerged as a potential instrument of poverty alleviation and empowerment, its governance is still a relatively new concept. While nascent MFIs need to develop a clear understanding of microfinance and its role, mature MFIs face the challenge of scaling-up to deliver larger impact. Effective governance would consider internal accountability, in terms of staff and management accountability as well as external accountability, related to performance, legal and interest group accountability. Critical issues that need to be considered in microfinance governance include:
- MFIs' dual mission;
- Ownership issues;
- Board's fiduciary responsibility;
- Risk assessment in MFIs.
Although effective governance is a pre-requisite for the long-term success of an MFI, the concept of empowering boards, as a means of improving corporate governance is still relatively underdeveloped. Finally, it is necessary to improve efficiency by overcoming governance challenges for the development of strong and sustainable MFIs.
