Through its Investing in Inclusive Finance program, the Center for Financial Inclusion has developed communities of practice and resources that explore the governance and risk challenges and opportunities associated with the intersection of financial inclusion and commercial investment. These areas include strengthening microfinance fund management; creating instruments that foster healthy local capital markets; assisting MFIs with transformation strategies; and building capacity and support for MFIs to qualify for commercial investment and to work effectively with investors. The Center seeks solutions that address the needs of both investors and MFIs.

Below is a selection of some of the most relevant and useful resources on governance and risk.

Publications

Banana Skins (CSFI, Citi, CFI)

The Microfinance Banana Skins publication is a yearly report reflecting perceptions of risk in microfinance by members of the microfinance industry. The report aims to reveal shifts in risk perception and to highlight both emerging and long-term risks in a rapidly changing field.

2014: Facing Reality
2012: Staying Relevant
2011: Losing its Fairy Dust
2009: Confronting Crisis and Change
2008: Risk in a Booming Industry

The Art of the Responsible Exit in Microfinance Equity Sales (CFI/CGAP, April 2014)

This paper seeks to explore the concept of a responsible exit along four strategic decisions: (i) the timing of the equity sale, (ii) buyer selection, (iii) the governance and use of shareholder agreements to achieve social objectives, and (iv) how social and financial returns are balanced when selecting among bids. We also examine how DFIs can use exits to encourage responsible market development given their particular role as publicly funded entities. We interviewed more than 40 representatives from MIIs, nongovernment organizations, DFIs, MFIs, and merger-and-acquisition specialists to capture their experience, perspectives, and emerging lessons on equity sale transactions. In addition, we conducted six case studies of equity exits, which are described in detail in the appendices.

Ten Risk Questions for Every MFI Board (CFI, June 2013)

This publication, an output of the Running with Risk project, asks ten microfinance risk experts to candidly respond to the top risk questions that every board member should be asking, and should be able to answer. It covers topics such as over-indebtedness, risk management measures, fraud, newer risks, and lack of communication, offering insight on some of the most difficult risk issues that board members face. This expert exchange also intends to provide board members with concrete suggestions of warning signs and strategies for effectively managing certain risks.

Governance Guidelines (CMEF, 2012)

In 2005, the Council of Microfinance Equity Funds, now Financial Inclusion Equity Council, published The Practice of Corporate Governance in Shareholder-Owned Microfinance Institutions. The Council updated the Governance Guidelines in 2012 to reflect new thinking and resources that have emerged in the microfinance industry around governance since the original version was published. While the original guidelines have not altered significantly, new or expanded guidance is provided in the areas of:

• Legal structures and formal documentation
• Social performance management
• Alignment of incentives
• Responsible exits
• Risk and crisis management

Weathering the Storm (CFI, 2011)

Weathering the Storm examines seven case studies of MFIs from around the world that have encountered – and in some cases, overcome – extremely challenging situations that resulted from rapid growth and other causes. The paper, published in 2011, aims to understand the root causes, consequences, and context of failures or near failures and to extract common lessons from each institution’s experience.

Industry Initiatives

Financial Inclusion Equity Council (FIEC)

The Financial Inclusion Equity Council (FIEC), formerly known as the Council of Microfinance Equity Funds, is the first membership organization to bring together the leading private entities that make equity investments in microfinance institutions (MFIs) in the developing world. The Council’s members seek both social and financial returns from their investments in these institutions, all of which provide a range of financial services to poor households in developing countries. As an industry association, FIEC convenes its members on a semi-annual basis for in-person meetings and networking. In addition, the Council, through its secretariat at the Center for Financial Inclusion, represents the voice of equity investors through a range of ongoing industry initiatives. For more, visit www.fiecouncil.com

Governance Working Group

The Governance Working Group (GWG) brings together leading experts and initiatives to address the challenge of improving governance in the industry. The GWG coordinates the different governance initiatives in the financial inclusion industry, conducts research to advance the state of knowledge and practices, and engages with different stakeholders to implement and improve practices. For more, visit the group’s page on the CFI website or visit the group on LinkedIn.

Risk Management Initiative (RIM)

The Risk management Initiative in Microfinance (RIM) was started in February 2013 through the collaboration of industry thought leaders focused on the design and use of risk management strategies to serve the microfinance sector. The mission of RIM is to contribute to the development of awareness, best practices, and appropriate standards for risk management in microfinance globally. RIM’s vision is to contribute to a socially focused microfinance sector through which microfinance clients are protected from the impacts of internal and external risks inherent to the delivery of inclusive financial services. For more, visit www.riminitiative.org