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European Microfinance Network Brussels , December 17th, 2013

Cooperation with Banks and Corporate Governance: Key Lessons for the Development of MFIs Aldo Moauro MicroFinanza Rating. European Microfinance Network Brussels , December 17th, 2013. ABOUT US| MicroFinanza Rating. Leading international specialized rating agency Year of inception: 2000

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European Microfinance Network Brussels , December 17th, 2013

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  1. Cooperation with Banks and Corporate Governance: Key Lessons for the Development of MFIsAldo MoauroMicroFinanza Rating European Microfinance Network Brussels, December 17th, 2013

  2. ABOUT US| MicroFinanza Rating • Leading international specialized rating agency • Year of inception: 2000 • Ownership: 2 independent individual founders • Global coverage: HQ + 6 regional offices • Assignments conducted: 900+ in 80 Countries • 40+ assignments in EU 27 under EIF Jasmine

  3. STAGE OF DEVELOPMENT– CONTEXT– OWNERSHIP TRANSPARENCY DREAM MISSION, VISION AND SHARED STRATEGIC OBJECTIVES STRATEGIC AND OPERATIONAL PLAN MANAGEMENT OF CHANGE ROLES, RESPONSIBILITIES AND GOVERNANCE ORGANS COMPOSITION INFORMATIVE ARCHITECTURE DECISION-MAKING, SUPERVISION AND CONTROL MANAGEMENT OF CONFLICTS AND DIFFICULT SITUATIONS RESULTS STAGE OF DEVELOPMENT– CONTEXT– OWNERSHIP

  4. Most common challenges related to MFI «social» governance • The dual focus of microfinance – social and financial – is not at the forefront of board engagement and strategic planning • No clear mission, mission not translated into realistic goals • No social goals tracking, no social performance metrics (i.e. SPM incentives for the CEO) • Insufficient skills on SPM by BoD members. Not defined training/exposure strategy • Lack of the right mix of people on the BoD (balance between social and financial “voices”) • Not adequate/systematic/standardized social information flow

  5. Roles definition and organs composition • Lack of leadership and commitment • Responsibilities/roles not defined or not formalized (bylaws, governance manual) • No BoD members defined selection/renovation criteria • No clear segregation of functions between BoD and management • CEO seats in the BoD with voting rights • Inadequate size of the BoD (too big or too small) • BoD committees are not in place

  6. Informative architecture • There is no standard reporting to the BoD • Systematic frequency • Standard data and indicators • User-friendly and defined standard format • Information channels are limited • BoD members receive info only from the BoD Chairman or by the CEO • No independent control of the information • Internal auditor • IA committee, Risk & Compliance committee, etc • External audits, ratings • Weak transparency on BoD and management expenses • Specific items on accounting and budgeting docs

  7. Decision-making, supervision and control • No written/formalized procedures for BoD functioning • Management selection, supervision, evaluation, succession • Role of the BoD members (Chair in particular) • Features of the BoD meetings (frequency, duration, activities, decision-making methods, etc) • Structure of governance is not effective • Lack of (or too many) specific committees • Lack of functioning policies and procedures of committees • Lack of strategic control/supervision • BoD does NOT feedback the CEO on compliance of social and financial objectives. No strategic guidelines provided • Lack of an institutional strategic planning and roadmap • Formal/standard control tools and policies are not in place

  8. Management of conflicts • Lack of formal policies/procedures to manage: • Nepotism, internal loans, use of institutional assets/goods for personal use • BoD members remuneration, reimbursement of expenses • Lack of a written/formalized code of conduct or code of honor • it practically reflects the institutional values • Need of an enforcement system (i.e. a Committee for managing of conflict or difficult situations)

  9. Governance of MFI transformation • Role of the BoD in protecting and promoting the social mission: • the mission statement of the newly formed entity was the same as that of the NGO; • choice for potential shareholders who accept NGO’s mission. Many potential investors eliminated; • the new entity retains the team of executives and staff who had successfully run the NGO; • NGO insists on maintaining majority control, despite prospective investor’s stated commitment to the mission .

  10. Thank you! MF Rating HQ Via Rigola, 7, 20159 Milan – Italy. Tel: +39-02-3656.5019 MF Rating Latin America Av. Orellana E11-14 y Coruña, Edificio M. Gabriela, 6° piso, Quito – Ecuador - Tel.: + 593 2 6023852 Calle Gavino Villanueva #345 Calacoto ,La Paz – Bolivia Tel: +591 67197171 Tel: +591 22790539 MF Rating Mexico Av. Patriotismo 229Piso8, Ciudad de México DF, CP 03800. Tel. +52 55 2881.0394. Tel. +52 222 284.52.01 MF Rating Central Asia 231 Tynystanova Str., apt. 14. 720011, Bishkek, Kyrgyz Republic. Tel: +996-312-624441 MF Rating Africa Royal Offices, Mogotio Road, Westlands, Nairobi – Kenya Mob: +254‐737 43.9297 MF Rating South East Asia Unit 34 Cattleya Gardens, 111 C. Palanca St., Makati City, Metro Manila, Philippines. Tel: +63 2 8173767 www.microfinanzarating.com | info@microfinanzarating.com

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