Automating local MFIs needs careful planning
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RE: “Central bank urges MFIs to automate to reduce bad loans” (The New Times, March 6). A perusal through BNR (National Bank of Rwanda) website shows a list of 416 registered Umurenge Saccos, 36 non-Umurenge Saccos and 18 microfinance institutions (MFIs) all licensed by the central bank. One would appreciate the need for effective management of the microfinance sector just going by the numbers alone.
I do support the proposal of MFI automation, but I believe this intervention needs a stable bedrock of effective corporate governance for MFI institutions. Automating an already poorly governed MFI only opens the door to weaken it further. Good governance is the ability of the board members to monitor the status of the organisation, make good strategic decisions, and hold executives accountable for their execution. Ultimately, this comes down to the quality of the board members, the culture and practice of the board, and the power relationships among board members and executives.
I believe the three factors mentioned above are key to effective governing of MFIs in Rwanda.
The central bank has a key role to play in the culture and practice of the board, by:
1. Developing a standard MFI board manual, training of MFI board members, amongst others;
2. The quality of board members can be ensured by guidelines (developed by BNR) on structuring of an effective board. This includes board size, composition of the board, recruitment, appointment, and rotation, board member composition, conflict of interest policy, structure to balance governance and management;
3. Unique challenges faced by MFI, especially the issue of double bottom line. This refers to the social and profit considerations which need to be well balanced.
4. Effective board process, including board meetings, information and disclosure etc.
All cases will therefore be different, for example the 416 Umurenge Saccos enforcement of corporate governance may be challenging given the proximity to family and friendships but nonetheless cannot be avoided given they constitute the majority of MFIs.
In this process, re-inventing the wheel should be avoided as this issue is a global problem. Applying some good lessons learned from MFI success stories like India (and South Asia in general) and Latin America, like Brazil, needs to be carefully studied and applied to Rwanda where applicable.