Governance & Methodology for the European Code of Conduct for Microcredit Provision in Europe

1. Brussels , Belgium, 17th December Prof. Karl Dayson, Executive Director, Community Finance Solutions, University of Salford Governance & Methodology for the European Code of Conduct for Microcredit Provision in Europe

2. Background • Gradual shift as MFIs professionalised to move away from subsidy to more sustainable approaches. The change was driven by: • Short life-span microcredit programmes • Increasing size of MFIs • Increased public scrutiny • Today numerous guidelines, manuals & several specialised MFI rating systems

3. MFIs: A Crisis of Governance? • Questions raised about loan book of Grameen Bank – efficiency by growth strategy • Very little discussion about subsidy (Von Pischke) • Do they actually help the poor? (Ellerman) • Should the focus be on savings & is there a tension between a MFI & its clients (Allen) • Impact on client of cost of credit & collection processes (India) • Does microfinance crowd out other anti-poverty initiatives? (Bateman) • The role of the state in governance (regulation & interference)

4. Problems facing MFIs in Europe • Diverse sector yet shouldn’t hide similarities • Lack of common accounting measures • National legal frameworks are very different • No agreement on what sustainability looks like or is • Access to capital as public money reduces • Quality of sector is uneven • Lack of policy clarity and what should be the relationship with the banking sector & business advice community

5. Content of the Code • Consists of 166 clauses and 20 priority clauses • Some clauses only applicable to large providers • Spread across five chapters • Customer and Investor Relations • Governance • Risk management • Reporting standards • Management Information Systems

6. Customer & Investor Relations • Sufficient information to customers • Customer rights • Avoiding over-indebtedness of customers • Customer care • Ethical staff & institutional behaviour • Customer data protection • Investor relations

7. Governance & Risk Mgmt • Business planning • Board responsibilities & membership • Management • External audit • Risk mgmt framework • Managing credit risk • Managing fraud & security risk • Internal audit

8. Signing up to Code • Content primarily developed for non-bank providers • Non-bank providers sign up to signal that will adapt its practice to Code • Providers given 18 months from sign up to comply with Code • Subject to external evaluation of Code • Must comply with 80% of weighted total of applicable clauses and all priority clauses • Clauses weighted according to importance – medium, high & priority • Non-applicable clauses: • Size provider • Contradiction national legal framework • Not material to provider

9. Pre-evaluation phase Initial contact and queries Sign up to Code Implement Code Completion & submission self-assessment tool Request to start evaluation from provider Overview of process

10. Evaluation phase Review justification for non-applicable clauses Check documentation Review compliance with clauses Submission of recommendation Overview of process

11. Post-evaluation and post-award phase Decision on award Provision post-award decision support and advice Provider addresses non-compliance with clauses Amendments reviewed & decision on award Overview of process

12. Thank you Prof. Karl Dayson Executive Director Community Finance Solutions T: +44 (0)161 295 2827 k.t.dayson@salford.ac.uk