FinDev Gateway, Arabic Editor

Lizzy Bolze

Miranda Beshara

Key governance and growth insights from a regional assessment of microfinance institutions in the Middle East and North Africa.

Brief

This study seeks to understand the key governance challenges facing microfinance institutions (MFIs) in the Middle East and North Africa (MENA). It examines the challenges that board members and CEOs see for MFIs operating in the region with a focus on whether boards are well-equipped to stabilize and grow their institutions. 140 executives and board members were interviewed about the governance opportunities and challenges their institutions face, and how effectively their boards operate.

The report further explores opportunities for MFIs to improve governance practices, reach a larger client base, and stay ahead of the evolving microfinance industry.

This report is also available <a href="https://content.centerforfinancialinclusion.org/wp-content/uploads/sites/2/2018/11/CFI_Brief_MENA_TNDA_Final_Arabic.pdf">in Arabic</a>.

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Governance and Strategic Leadership of Microfinance Institutions in the MENA Region

Senior leadership from across the MENA region’s microfinance industry gather to discuss issues of governance 

Blog Post

[caption id="attachment_23436" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301263350/in/album-72157678506203794/"><img class="wp-image-23436" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301263350_ab536c426a_k-1.jpg" alt="" width="615" height="410" /></a> Alex Silva, Executive Director, Calmeadow[/caption]

Governance is a business imperative, and investors are willing to pay a premium for effective corporate governance. This was one of the key takeaways from the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/mena-leadership-seminar">Middle East and North Africa (MENA) Governance and Strategic Leadership Seminar</a>, held recently in Amman, Jordan. We’ve seen this stated priority of governance in the MENA microfinance market exhibited elsewhere, too. A joint <a href="http://www.ifc.org/wps/wcm/connect/703b6a004a7232b29eefdf9c54e94b00/Voices+MF+Sector+in+Arab+World.pdf?MOD=AJPERES">IFC-Sanabel report</a> assessing the top perceived risks facing the microfinance industry in the Arab world uncovered that the market’s stakeholders viewed weak corporate governance structures as one of the more threatening risks out of roughly 30 risk categories. Financial service providers in particular perceive this risk to be rising.



[caption id="attachment_23433" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33301262930/in/album-72157678506203794/"><img class="wp-image-23433" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33301262930_46467c6ac5_o.jpg" alt="" width="615" height="482" /></a> Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer, Avanz Capital[/caption]

This seminar was the first time senior leadership from across the MENA region’s microfinance industry convened to discuss their experiences with governance and strategic leadership. A total of 41 participants from 19 MFIs came together for three days of peer learning and exchanges. The seminar, modelled after CFI’s <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/abf">Africa Board Fellowship</a>, was hosted by CFI, <a href="http://www.calmeadow.com/">Calmeadow</a>, and <a href="http://www.sanabelnetwork.org/home/default.aspx">Sanabel (the Microfinance Network of Arab Countries</a>), with support from the <a href="https://www.fmo.nl/">Dutch Entrepreneurial Development Bank (FMO)</a>. The Arabic Microfinance Gateway was also among the partners to help facilitate the event, and we are thrilled to share the main takeaways in this post.

“As an investor, I look for adding value and reducing risk,” shared Hany Assaad, Co-Founder and Chief Portfolio and Risk Officer at Avanz Capital. “Effective corporate governance increases the value of businesses,” he added.

[caption id="attachment_23438" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842329964/in/album-72157678506203794/"><img class="wp-image-23438" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842329964_a25170c838_k.jpg" alt="" width="615" height="410" /></a> Mohammed Khaled, Senior Microfinance Operations Officer for MENA, IFC[/caption]

Mohammed Khaled, IFC’s Senior Microfinance Operations Officer for MENA, noted that most MFIs in the region are NGOs, and as such have largely volunteer board members, which can contribute to limited effectiveness. The commercial development of the sector in the region has been hindered by the lack, until recently, of legal pathways for transforming NGOs. As laws evolve in the region, MFIs may be allowed to register as non-bank financial institutions, which would change the institutions’ financial structures and create a need for investors and, as such, an increased need for sound corporate governance. Board responsibilities and dynamics are different for investor-owned financial institutions than they are for NGOs, requiring board members to acquire new skills, according to Alex Silva, Executive Director of Calmeadow.

The stakes are getting higher in the region as the overall industry is growing in complexity. Deborah Drake, Vice President, Investing in Inclusive Finance, CFI, spotlighted the changing sector risks as charted by the <a href="http://www.centerforfinancialinclusion.org/programs-a-projects/investing-in-inclusive-finance/risk">Banana Skins report series</a> from 2008 to 2016.

The Banana Skins reports are based on the views of sector participants of the most pressing risks and challenges, like new technologies, new market entrants, client repayment capacity, and macro-economic risks. The <a href="https://www.microfinancegateway.org/library/financial-services-all-csfi-banana-skins-survey-risks-financial-inclusion">2016 Banana Skins report</a> pointed to the importance of governance, finding that nine of the top ten risks were “internal” and that institutions without a sound strategy could face marginalization.

[caption id="attachment_23444" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/32842330394/in/album-72157678506203794/"><img class="wp-image-23444" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/32842330394_de9f46adb4_k.jpg" alt="" width="615" height="410" /></a> Suha Ennab Tleel, Board Member, Vitas, Jordan[/caption]

Competition from new market entrants in the region, in particular fintech companies, is a prominent concern expressed by participants. According to a <a href="https://www.microfinancegateway.org/library/fintech-mena-unbundling-financial-services-industry">recent report</a>, the number of fintech companies in the region offering financial services has doubled from 46 to 105 in the past three years. Half of these offer payment solutions, and one-third offer lending and financing services. MFIs in the region are now estimated to reach out to <a href="http://www.cgap.org/blog/20-years-financial-inclusion-arab-world">approximately 3 million borrowers</a> with an outstanding portfolio over $2 billion – far below the market potential. Slow growth is due to both internal factors such as slow expansion and the lack of product diversification and external factors including political instability and regulatory barriers. MFIs in the region need to think deeply about the different risks and opportunities in order to adapt to change.

[caption id="attachment_23448" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835012/in/album-72157678506203794/"><img class="wp-image-23448" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835012_a2d936d0e9_k.jpg" alt="" width="615" height="410" /></a> Eyad Nino, Deputy General Manager, Microfund for Women[/caption]

Keeping the client at the center is one of the keys for sustainable and responsible growth. <a href="http://www.cgap.org/publications/business-challenges-booklet">Recent research</a> shows that customer centricity not only allows organizations to better serve customers but also solves the common business imperatives of acquisition, retention, and expansion.

When considering commercialization, concerns about drifting away from the social mission grow larger. One way to preserve the social mission is to ensure that management and boards consider both social and financial performance indicators. For example, the Microfund for Women in Jordan created the position of Social Performance Manager and Al Amana in Morocco established a Social Performance Committee that reports to the board.

[caption id="attachment_23440" align="aligncenter" width="615"]<a href="https://www.flickr.com/photos/cfi_accion/33528835252/in/album-72157678506203794/"><img class="wp-image-23440" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33528835252_48d18f34df_k.jpg" alt="" width="615" height="410" /></a> Jane Giacaman, Director of Microfinance, UNRWA[/caption]

Both the <a href="https://sptf.info/universal-standards-for-spm/start-here">Universal Standards for Social Performance Management</a> and <a href="http://www.smartcampaign.org/certification">Smart Certification</a> also provide guidance on best practices to help financial service providers put clients at the center of all strategic and operational decisions and align their policies and procedures with responsible business practices.

The seminar’s discussions engaged and enriched participants, who returned home with stronger masteries of good governance and leadership. Going one step further, many participants made specific commitments: to form board committees; to provide board training; to recruit more diversified and experienced talent for their boards; to better define risk appetites; to seriously explore technology and adaptations to their business models; to incorporate social performance and client protection practices; and finally to adequately prepare for succession planning. We, the seminar organizers, will be checking in with the participants to see how they are faring, and we hope these are just the first steps of many to further the dynamic microfinance market in the Arab region.

<a href="https://www.flickr.com/photos/cfi_accion/33644035656/in/album-72157678506203794/"><img class="aligncenter wp-image-23431" style="border: 0 solid #000000" src="https://centerforfinancialinclusionblog.files.wordpress.com/2017/04/33644035656_186e4ea05f_k.jpg" alt="" width="615" height="410" /></a>The Arabic Microfinance Gateway served as the Outreach Partner for the MENA Governance and Strategic Leadership Seminar. You can learn more about governance and other topics on the Gateway in <a href="https://goo.gl/y4gpXz">Arabic</a>,<a href="http://www.microfinancegateway.org/topics/governance"> English</a>, <a href="http://www.microfinancegateway.org/fr/sujets/gouvernance">French</a>, and<a href="http://www.microfinancegateway.org/es/temas/gobernabilidad"> Spanish</a>. 

And for more photographs from the seminar, the full album is available <a href="https://www.flickr.com/photos/cfi_accion/albums/72157678506203794">here</a>. 

This blog post is also available in Arabic <a href="https://goo.gl/V5s0Mt">here</a>.

Have you read?

<a href="https://cfi-blog.org/2014/12/23/governance-challenges-in-mena-microfinance-institutions/">Governance Challenges in MENA Microfinance Institutions</a>

<a href="https://cfi-blog.org/2013/03/27/are-youth-inclusive-financial-services-in-mena-a-driver-of-financial-inclusion/">Are Youth-Inclusive Financial Services in MENA a Driver of Financial Inclusion?</a>

<a href="https://cfi-blog.org/2016/04/07/what-can-we-learn-from-governance-success-stories-in-mena/">What Can We Learn from Governance Success Stories in MENA?</a>

Miranda Beshara

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