Governance Challenges and Possible Solutions for Small to Mid-size BPRs

MicroSave's Briefing Note No. 133 discusses common governance challenges faced by small to mid-size rural banks in Indonesia and highlights possible solutions. The 2008 and 2009 Microfinance Banana Skins reports identified corporate governance as one of the main risks facing the sector. Banking Banana Skins report 2012 also recognized the need for stronger governance and risk management practices. Key industry players including regulators, donors, and investors have highlighted the need for appropriate governance structures and processes. Conclusions include:

• Good governance can establish the right long-term foundation to ensure that small to mid-size rural banks and MFIs stay on track to achieve their business and social goals;
• Rural banks and MFIs face increasing governance challenges to address issues such as rapid growth, sustainability, and formalization;
• Financial solvency and long-term sustainability of the institution will be at risk without a governance structure that will enable stakeholders to oversee effective management;
• Establishing a good governance system requires an appropriate combination of board members and their full participation;
• Promoters, governing board members, and chief functionary have to work in collaborative coordination to ensure effective governance.