Sound Corporate Governance Is Key to Achieving Social Goals

Corporate governance is becoming a topic of high interest among microfinance professionals. Many consider the lack of good corporate governance as one of the main challenges facing the sector in Latin America and the Caribbean. In fact, at BBVA Microfinance Foundation we see the topic as a priority for the region, and we are working to raise awareness on the fundamental role of corporate governance for MFIs.

We produced a “Universal Code of Corporate Governance for Microfinance Institutions”. In addition with IADB-MIF, we published a “Guide to Adopting Good Governance Principles in Microfinance Institutions” and launched a corporate governance training workshop program open to all MFIs in Latin America to promote good governance. As a result, we have had the opportunity to speak with many industry actors who have confirmed weaknesses on corporate governance among MFIs:

•  MFIs need training on corporate governance (some MFIs lack board members trained on governance);
• Some MFIs do not have code of governance, or a code of conduct;
• Some microfinance professionals believe sound corporate governance is merely about having a code;
• Some MFIs board members identified conflicts of interest within their organizations (without conflict of interest procedures to solve them) as well as the lack of clear assignment of roles and responsibilities of management, board and shareholders;
• Some of the smaller MFIs and in particular cooperatives believe corporate governance applies to big and regulated MFIs only, is abstract and is basically just red tape.

The good news is that the universal code and the guide are being used by other microfinance actors.

During our workshops participants learn how sound corporate governance contributes to efficient management and to considering stakeholder interests. While we believe those MFIs that engage in our program actually improve their corporate governance, more needs to be done.

At BBVA Microfinance Foundation, we view good corporate governance as a system of people, values, criteria, processes and procedures that ensure an organization is managed properly and guides it towards its mission and vision. This means that we are also ensuring that our corporate governance system guides our own group of MFIs towards our social mission. We are building a group of sustainable MFIs through the transformation of acquired pre-existing MFIs, or the creation of new MFIs. We are always the majority shareholder in our MFIs and our selection of partners is based on social criteria; as a result there is true agreement from the beginning on a common social mission. Being the majority shareholder is fundamental as we go beyond merely influencing our MFIs. In fact, it allows us to be a very engaged owner leading our MFIs strategy and being involved in the management of our MFIs.

Moreover, we developed our Code of Governance and Code of Conduct for our MFIs in accordance with generally-accepted international standards and good practices, with the aim of creating a common culture and standard working framework within all our institutions, while maintaining the specific identity of each. Those codes represent our expressed commitment to professional integrity and ethics and facilitate that our social mission is explicit at all levels.

We believe our corporate governance system advances our mission, fundamental goals and strategic guidelines, contributes to our long-term sustainability and creates transparency and trust. Better corporate governance means that the MFI is better organized, plans its goals and strategies better and fulfills its mission more efficiently.

Do you agree sound corporate governance is fundamental to achieve sound management and social goals?

The MFIs of the BBVA Microfinance Foundation group are Banco de las Microfinanzas-Bancamía in Colombia; Caja de Ahorro y Crédito Nuestra Gente and Financiera Confianza in Peru; Microfinanzas PR in Puerto Rico; Emprende Microfinanzas and Fondo Esperanza in Chile; Contigo Microfinanzas in Argentina and Microserfin in Panama.

If you would like to get in touch with the authors for more information, you can contact them at buengobierno@mfbbva.org or visit www.mfbbva.org/english.html