In a paper published in October 2010 the World Microfinance Forum Geneva (WMFG) argues that the microfinance sector can take valuable lessons from the cautionary tales that the global banking crisis provides, especially regarding corporate governance. Same Game, Different League recognizes that even as microfinance institutions (MFIs) transform into partially- or fully-licensed banks, their business models may retain significant differences from traditional banking. Nevertheless, the author, Maria Giovanna Pugliese, makes a case that for all financial service providers, it is primarily the quality of internal governance that determines whether an institution foresees, manages, and survives setbacks.
It is nice to learn that there is yet another global microfinance forum. Good causes never lack supporters, isn’t it?
This time it is presided by a Swiss Investment Banking Manager and the report is written by a Wealth Manager of one of the world’s largest banks. Both people manage billions of USD for millionaires as their income generating activity and both have a desire to also helping poor people. The website of the author’s employer states as its Mission “Barclays Wealth is committed to meeting the needs of wealthy clients and those aspiring to become wealthier”. This objective seems to stand opposite to CGAP’s title: Consultative Group to Assist the Poor, the organisation that supports the forum and published the paper on its website. It is clear that the objectives, activities and results of a business’s Corporate Social Responsibility (CSR) activities should never compromise their employers (and their clients), of course not. That is a control issue, which the author, also working for UK’s Financial Services Authority (FSA) would certainly endorse.
Now there lies the main challenge which is terribly missing in the report and in the forum as such. Most if not all main Microfinance Institutions in the world have been created, funded by foreign organisations. Most often these foreign socio-political bodies, including the “Corporate Social Responsibility” departments of purely commercial business, still have defining and decision-making influence in the MFIs and want to maintain such influence.
Thus focusing on INTERNAL control rather than on Governance in general is a serious omission, or maybe a serious intentional mistake in this paper.
Good effective and efficient governance can only support MFIs in becoming self-sustainable financial institutions that remain true to their objective of building inclusive financial systems in which all clients have legally enforceable rights, when their governance and control are locally determined and when they regulated and supervised. If local regulation and supervision are weak, then that is an area to strengthen (possibly also with foreign advice).
In my experience, foreign developmental organisations that fund, create and support Microfinance Institutions have a hard time in letting go of "their" MFIs and often promote and use ways that avoid applying local strategies, policies and even laws. This is maybe the most important challenge of Microfinance, fifteen years ago (when CGAP started its activities) and now.
What do you think?
Respectfully, Peter
BSD City, Indonesia, March 2011