11

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

organizations, this means that there is a

that links the shareholder to the board,

combination of fund-based activities

to the management, to the staff, to the

along with fee-based activities which

customer and to the community at large

may result into leading the organizations

(CGAP 1997).

towards a faster arrival of financial

sustainability and break-even. But in the

The function of governance is to rule,

area of non-financial indicator's to

lead, create and maintain structures and

sustainability, Governance is the key.

systems and monitor performance. How

people govern depends upon their

5.

What have been AIAMED efforts in

values and beliefs, their ability to make

this area?

decisions, as well as their capacity to

ensure effective implementation of

It realized that the expansion of the

decisions (The human face of corporate

capacity frontier in governance of

governance By Lyn Mac Gregor)

organizations involved in financial

services to the poor needs specific tools

Corporate governance consists of two

and training to make it possible. It has

elements.

founded two tools and based on these

AIAMED realized

tools has conducted many training

i.

The long term relationship which has

that dealing with

program and workshops for effective

to deal with checks and balances,

Governance in

governance.

incentives  for  managers  and

organizations is

communication

between

like being

The first one is the set of ten different but

management and investor's and

involved in heart

inter-related tools for self -assessment.

and brain surgery

AIAMED realized that dealing with

ii . The transactional relationship which

at the same time

Governance in organizations is like being

involves matters relating to disclosure

as it deals with

involved in heart and brain surgery at the

and

authority

(Corporate

very sensitive

same time as it deals with very sensitive

Governance  By  John  Aisbitt,

organ of the

organ of the organization, which may be

Managing Director Goldman Sach's

organization,

voluntary in nature. So this has to be

International Financial Times New

approached in a non-threatening

Delhi).

which may be

manner paving the way for dialogue and

voluntary in nature

introspection, may be with a external

It is the system by which corporations and

facilitator.

institutions are directly controlled and

held to account. It is connected with the

Once there is consensus among the

social, political and legal environment in

board /executive committee regarding

which the corporation operates; the

the strength /weakness and other

institutionalized  process,  systems,

dimensions of governance, this can be

practices and procedures; the formal

followed by a workshop on governance

and informal rules that govern the

and policy. The policy areas touched

corporation; the manner in which these

upon were- board /Chief executive /or

are  applied  and  followed,  the

functionary relationship, governance

relationship and the extent to which

process, operational parameters etc. We

these facilitate and provide support for

will talk about this experience and tools

collective development and utilization of

in the second part of this article.

knowledge, technology, people and

other  resources  to  enable  the

6.

Understanding Governance before

corporation to meet it's objective.

dealing with it.

7.

Each definition above emphasizes

It will be helpful to look at some definitions

a particular aspect of governance

of governance to understand the various

and on the whole provides a

contours of governance.

comprehensive picture of the role,

function and key elements of

Governance is a process, by which a

governance. On the whole,

board of directors guides an organization

governance in our type of work

in fulfilling its corporate vision, and mission

tends to promote five objectives:

and protects the institution's assets.

Leadership for efficiency and

Effective governance occurs when a

effectiveness  (i.e.  improved

board provides proper guidance to

strategic, operational guidance

management regarding the strategic

and discipline), leadership for

direction for the organization and

probity (gaining respect and

oversees the management efforts to

credibility  for  transparency),

move in this direction.

leadership  for  responsibility

(responsive to the needs of

Governance is a system of checks and

stakeholders and the end user

balances whereby a board is established

focus),

leadership

that

is

to mange the mangers. Governance is

transparent and accountable and

sometimes conceived as a virtuous cycle

leadership

with

focused