14

Sa-Dhan Patrika

Volume 7,

Issue 2, December 2006

Emerging Challenges to Governance in

Community Development Finance

Institutions

Sa-Dhan, as the association of community development financial institutions

strives to provide a facilitative environment and work towards developing a

socially responsible and financially accountable microfinance sector. The

Standards Team in Sa-Dhan had been working on the issue. The Standards

Conference (STANCON August 2006) witnessed Governance as a key theme for

debate and discussions. As an instrument to engage important stakeholders and

members into specific issues, the first Standards Quarterly Review (SQR) was

organised in October 2006 on the theme "Emerging Challenges to Governance

in CDFIs'. The SQR saw participation from members of Standards Advisory Group,

Standards Sub Group and CEOs of Sa-Dhan member institutions.

interrupt in the matter concerning

Significant excerpts from deliberations

people and MFIS are working for

in the SQR

people. The sector is also getting more

attention by media, Government and

The Standards Quarterly Review meet

the public as well. Hence it becomes

witnessed deliberations on the issues of

important for the MFIs to have strong

governance, the practices on the

governance mechanism to be able to

ground, expectations within and

manage itself without the individual

outside the sector and the institutional

(founder-CEO).

measures that would collectively

represent the robustness of institutions

Good governance is believed to have

in the sector. With the growth of the

clearly

responsibilities

and

sector the focus on clients and

accountability along with rotation of the

institutional setting are getting faded

post within Board members. Moreover,

and this has invited debate on the issues

a  good  board  represents  a

of

organizational

processes,

combination of 5C's viz., Continuity,

transparency  and  dealing  with

Commitment, Credibility, Contacts and

stakeholders. Governance involves not

Capable of raising resources. Small

just building openness but details of

CDFIs lack mechanisms to incentivising

communicating operations as well.

participation to the board of qualified

Growth in organizations has brought to

professionals. As such professionals can

the fores some issues that are a mix of

With the growth of

be a part of advisory body to the

priorities and slippages.

the sector the

organization  to  enhance  the

focus on clients

governance and performance.

Governance practices in the mF sector

and institutional

setting are getting

The forum unanimously suggested that,

Microfinance sector in India is up scaling

faded and this has

both horizontally and vertically7. Earlier,

Sa-Dhan should create a database

invited debate on

regarding the directors of its member

if mFIs used to depend on grants only,

the issues of

organizations. This will help the member

now they prefer to borrow from the

organizational

organizations in selecting a good board.

banks. They give more emphasis on

processes

It should state who are the directors,

sustainable mode in addressing the

CEOs and other stakeholders of that

needs of the poor rather than just

particular MFI. A governing body is to

delivering the basic services. Politicians

the organization, as the Government is

and bureaucracy are showing greater

to the country. The importance of

interest in it as they see MFIs as political

governance can be better captured by

threat. People are considered as vote

banks, so politicians will always want to

the following equation:

7

Horizontal up scaling refers to MFIs expanding to other geographical areas and vertical up scaling

refers to providing additional services (credit plus) in a fix geographical area.