9

Theme - Issues and Challenges in Governance of microFinance Institutions (mFIs): Indian Experience

values and performance. While it may

further, the distance between the

sound paradoxical, it is important the

functional managers and the clients

CEO allows a Board to evolve an

grows as more people are employed.

effective role for itself for the most

These lower level employees find

effective transition from a CEO-driven

themselves

restricted

by

a

organization to a Board governed

cumbersome hierarchy. They are close

organization. While the CEO-Board

to the market and understand the

linkages in the context of governance

requirements but are torn between the

would cover a whole host of issues, the

need to follow procedures and taking

authors believe that the important areas

initiative on their own. It is now time for

where the executive management and

the institution to move to a more

the Board need to align on are:

decentralized organization structure

and increase the focus of the senior

Holding the management accountable

management on delegation. Typically,

for performance: The board holds

the organization now is set up into

management responsible for the

business units based on products or

activities of the organization5. The board

geographies which are given targets

is thus responsible for ensuring processes

in terms of profitability and growth and

are in place to identify a competent

the unit managers are given the

executive, setting clear and measurable

authority and incentives to meet the

goals, and monitoring performance. In

targets.

addition, the board must be able to

identify managerial weaknesses and

Management literature goes onto

confront them when these adversely

describe further stages as institutions

affect the institution. In order for this role

grow bigger and expand into multiple

to function well, the management needs

industries and become international.

to be proactive in sharing information

However, the microfinance industry is

with the board and involving the board

still in its early days and very few

in the strategic planning process for the

institutions have grown even beyond

organization. The ability of the board to

the first phase. Except for a few, MFIs in

assess and confront weaknesses in the

India are still small and almost all

management is enhanced by a good

continue to be led by the visionary

level of trust between the board and the

leader who first thought of creating an

management, and a higher level of the

organization to fill some gap in the

board's exposure to other members of

services for the poor. As the institution

senior management.

grows, the CEO often needs to change

his leadership style to meet the

Ensuring clear planning for succession of

requirements of a larger team and also

senior managers:  This being a very

a more diverse donor and client base.

sensitive issue, the Board needs to

A board that closely follows the

communicate the message that "the MFI

strategy and growth of the institution

is bigger than any single person"6. This role

will be aware of the need for such

This role of the

of the Board would prove important for

change in helping the CEO to make

Board would

the evolution from founder-based

the transition.

prove important

organizations. A structured succession

for the evolution

plan aimed at leadership development

CEO-Board

Linkages

in

Growing

from founder-

and reducing concentration risk on any

Institutions

key personnel (including the CEO) would

based

be an important element of strategic risk

organizations

More often than not, MFIs in India are led

management for the organization and

by strong visionary CEOs who have been

needs to be led by the Board.

instrumental in shaping the organization's

5

This section of the article draws on the paper­ Principles and Practices of Microfinance governance,

Accion International, 1998

6

Consensus Statement of Council of Microfinance Equity Funds, May 2005

The authors work with Unitus.

About Unitus: Unitus is focused on creating innovative solutions to global poverty using

a venture capital model. Unitus seeks to dramatically accelerate the growth of

institutions focused on providing access to financial services to the poor. Unitus

currently has 11 partners in its worldwide portfolio that provide life-changing financial

services for more than 1 million of the world's working poor.