Re-Crafting The Image Of The Microfinance Industry

In the mid-part of 2015, the mass media reported that directors of DKM Microfinance had diverted GHS77.26 million of depositors’ funds to subsidiary companies. The story dominated the mass media and many potential clients of MFCs recoiled into a shell of mistrust and doubt toward microfinance, the very innovation that seeks to alleviate poverty worldwide.

How can microfinance companies survive and prevail as the media continue to feast on juicy information about their peril? How can the industry be nurtured to grow into a model worth emulating like is seen in Asia and South America? MFC leaders can play a major role in overcoming these challenges.

STRENGTHENING MFC STRUCTURES

To be able to meander one’s way through the current negative perceptions, MFC leaders will need to toughen up their current governance structures, develop strategies to beef up their funding base, and most of all, rebrand themselves in the eyes of the public through social interventions.

Strengthening a microfinance company’s governance structure may seem obvious to a CEO who feels that s/he already practices good governance. Yet, poor governance can be easily overlooked in a fast-paced microfinance environment where all are fighting to gather deposits and keep afloat.

An adage reminds us that “the fish rots from the head”. One would therefore have to ensure that the head provides effective decision- making to direct the body on the path of nourishment. Consultative Group to Assist the Poor (CGAP) reports that microfinance institutions with the most sound governance structures tend to have risk management functions, internal auditing procedures, and existence of effective boards.

Boards need to initiate discussions on the need to define or realign with the vision and mission of their respective microfinance companies. It should be noted that “unless an MFC aligns its systems to its mission, and its products and services to strategic goals, it cannot adequately meet client needs”.

{https://www.cgap.org/blog/how-do-we- improve-microfinance-governance-start- measuring-it}

Additionally, there should be a deliberate attempt to build a good governance structure by appointing a staff member to serve as a risk manager or internal auditor to ensure the existence of risk management functions and internal auditing procedures, as well as the proper functioning of board committees.

The board and management should remember their collective mandate of setting prudential limits on the MFC, and ensure that appropriate policies and procedures are in place to monitor and mitigate risks. To avert surprises such as the recent crises, MFCs should establish reporting and early warning systems, as well as contingency planning.

CLIENT-CENTREDNESS & A RETURN TO THE BASICS OF MICROFINANCE

To avert the current situation, MFCs must return to their mission. Boards and senior management must build their capacity and incorporate elements of social performance into their strategy.  These elements will re- orient the leadership of MFCs on the core purpose of microfinance.

A number of social performance workshops had been organized in Ghana on the subject. It is indeed worthwhile to send some staff with the potential to transfer knowledge from any of these workshops to begin the re-orientation of the microfinance industry towards client- centeredness.

Boards and managements of MFCs should leverage on their comprehensive risk management approaches to communicate effectively with the aforementioned stakeholders. An initiative such as an MIS system will enable reporting of effective information for decision-making and will strengthen the confidence of regulators in the MFC’s ability to keep the regulator updated on its growth trajectory.

Although some damage has been done to the microfinance sector, the industry can be revived. Other countries have gone through similar crises but what is important is for both regulators and microfinance companies to begin to work together towards a return to their first love: client- centeredness.

Although the BoG had put a halt to the licensing of new microfinance companies, microfinance company leaders can begin to sanitize the industry in their own small but effective ways. They will need to strengthen the governance structures, institute effective risk management strategies, devise ways to recapitalize, as well as engage in efforts to rebrand and regain the confidence of the public.

Microfinance companies have a calling to respond to.  Although these are difficult tasks, they are achievable. It will take many bold steps but the most important one will be the first step.

By Francis Okunade – Associate

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