Training MFI Directors on Governance

“Our Board members have already been trained on Governance”

“They know it all”

“Our institution already has a strong board — we don’t need this type of training”

“Governance is not one of our priorities of the moment”

Do any of these answers sound familiar when introducing or talking about governance training in Sub Saharan Africa?

Many other reasons for not focusing on governance also come up, ranging from the relative maturity of the institution, its legal status, financial or budgetary concerns, and last but not least the other “hot” capacity building initiatives that need funding.

In fact some MFIs do have informed and knowledgeable board members who lead the institution and take decisions and actions to define the organization’s mission, establish policies, and determine control mechanisms to allocate power, establish decision making processes and set up procedures for performing specific tasks. Some institutions also know the internal strengths they can capitalize on and the areas for improvements. However, they are not always willing to open their door to analysis by external parties of their governance affairs or to accept positive critiques aimed at better management and sharing of best practices until things get tough.

Indeed, governance has been a delicate topic to promote within MFIs in the African continent, especially if the initiative is perceived as a requirement imposed by donors or investors. Most boards and their directors are well intentioned but they do not question good governance practice or consider how to strengthening governance capacity.

Often, when requested to “improve their governance environment” MFIs therefore try to comply or satisfy investors merely for the sake of raising new funds. Once the formality has been completed, MFIs may lack operational guidance and tools to maintain and continuously monitor the governance environment. MFIs do not necessarily value the existence of good governance practices as a way to achieve sustainability, or as a path for improved leadership and strategic planning unless leaders (top management) see the impact of good or bad governance in the industry and the competitive advantage they will gain in the long run.

There needs to be a clear understanding of governance. It is not only about board functions, but also policies, procedures, compliance etc. Several governance issues are common and need to be carefully considered. The payment of fees and expenses of board members is always a difficult subject, particularly for MFIs that are not sustainable. Guidelines would be helpful.

Board composition needs to ensure the right mix of skills and independence, which is not easy. Board sub-committees are often over-looked, not in place or not effective, particularly in smaller MFIs . The role of the Chair is critical to ensure leadership and good management of Board functions. The dynamics of the relationship between Chair and CEO also often needs attention, and this relationship is important to ensure sound leadership and to minimise conflict.

Therefore, governance enhancements initiatives introduced at the MFI level should be piloted and negotiated with tact. Most importantly, they should be a live and practical exercise in order to be more impactful and used as a management lever. It is the role of responsible finance and its stakeholders to implement and advocate for good governance and good practices.

Finally, for governance initiatives to be successful, investors and donors need to implement concerted actions with their partner MFIs to advocate and promote active governance in the institutions we sponsor.

Through its Technical Assistance Facility Fintech, Africap has supported active governance through the Governance Methodological Guide and Tools written by Massimo Vita and Juan Vega Gonzales. It has been translated from English to French to ensure wider distribution.

The Guide and its Support Handbook has been formulated to give board members, managers, crucial personnel of microfinance institutions, investors and specialised consultants tools to support them in strengthening governance processes through a better definition of the roles, the information system and the processes of supervision, oversight, conflict management and decision-making.

While part of the work and training focuses on board members and top management, key staff, clients and other employees of the MFIs are also deeply involved in the development and assessment of governance.

The Guide contains practical tools that will enable MFIs to conduct self-assessments on the state of their governance practices. The guide is not viewed as a criticism of the existing structures in place rather as an opportunity for the MFI board members and top management to achieve double bottom line objectives and draw up their own road map on governance. The methodology requires that an external consultant guide the MFI throughout the process.

We also need to work hand in hand with regulators in Sub-Saharan Africa. In francophone West Africa there are strict frameworks provided by OHADA on Board functions that MFIs must comply with. So we need to look at governance in the context of the regulatory environment. This will be critical for the Board buy-in and commitment to the success of any initiative to be implemented.