Microfinance and Governance

The term governance refers to how the rights, claims and obligations are divided among the stakeholders of an organization. Governance deals with the rules and regulations shaping ownership, management and its monitoring. The governance of an organization consists of a set of internal as well as external mechanisms that are in place to make sure that the interests of its stakeholders (shareholders, banks, employees, government, and society as a whole) are taken care of by management. Since the corporate scandals of the early 2000s, governance has received a lot of attention, both from academia as well as from policy makers. Governance is also important for microfinance. According to the Centre for the Study of Financial Innovation (CSFI), governance is one of the main concerns microfinance institutions (MFIs) have to deal with, especially in the last couple of years. In particular, the reports stress concerns related to the low quality of management and lack of professionalism, cronyism, and lack of transparency and disclosure.