Voting the Double Bottom Line: Active Governance by Microfinance Equity Investors

This Focus Note offers evidence to a widely-held perception that equity investors including private microfinance funds and public international financial institutions are not doing enough to govern actively and strengthen the oversight of MFIs. This study is based on interviews with more than 100 industry insiders. It finds that equity investing requires active governance especially for value-based investing because value-based investors seek to guide the company in behaving responsibly and creates both financial and social returns. Its other findings include:

• Corporate governance serves to mediate interests of diverse stakeholders, including shareholders, management, and employees as the basis for decisions on a company's strategy and goals;
• In the case of MFIs, those diverse interests also include protecting vulnerable clients and pursuing a social as well as a financial bottom line;
• Equity is of growing importance to the microfinance sector and social investors that provide equity have expanding opportunities to play governance roles;
• It also identifies promising trends, including some smaller investors that “punch above their weight” by putting significant resources into improved MFI governance.