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Governance & Methodology for the European Code of Conduct for Microcredit Provision in Europe
Brussels , Belgium, 17th December
Prof. Karl Dayson, Executive Director, Community Finance Solutions, University of Salford
• Gradual shift as MFIs professionalised to move away from subsidy to more sustainable approaches. The change was driven by:– Short life-span microcredit programmes– Increasing size of MFIs– Increased public scrutiny
• Today numerous guidelines, manuals & several specialised MFI rating systems
Background
• Questions raised about loan book of Grameen Bank – efficiency by growth strategy
• Very little discussion about subsidy (Von Pischke)
• Do they actually help the poor? (Ellerman)
• Should the focus be on savings & is there a tension between a MFI & its clients (Allen)
• Impact on client of cost of credit & collection processes (India)
• Does microfinance crowd out other anti-poverty initiatives? (Bateman)
• The role of the state in governance (regulation & interference)
MFIs: A Crisis of Governance?
• Diverse sector yet shouldn’t hide similarities
• Lack of common accounting measures
• National legal frameworks are very different
• No agreement on what sustainability looks like or is
• Access to capital as public money reduces
• Quality of sector is uneven
• Lack of policy clarity and what should be the relationship with the banking sector & business advice community
Problems facing MFIs in Europe
• Consists of 166 clauses and 20 priority clauses• Some clauses only applicable to large providers• Spread across five chapters
– Customer and Investor Relations– Governance– Risk management– Reporting standards– Management Information Systems
Content of the Code
• Sufficient information to customers• Customer rights • Avoiding over-indebtedness of customers• Customer care• Ethical staff & institutional behaviour• Customer data protection • Investor relations
Customer & Investor Relations
• Business planning• Board responsibilities & membership• Management • External audit• Risk mgmt framework• Managing credit risk• Managing fraud & security risk• Internal audit
Governance & Risk Mgmt
• Content primarily developed for non-bank providers• Non-bank providers sign up to signal that will adapt its practice to Code• Providers given 18 months from sign up to comply with Code• Subject to external evaluation of Code
• Must comply with 80% of weighted total of applicable clauses and all priority clauses
• Clauses weighted according to importance – medium, high & priority• Non-applicable clauses:
– Size provider– Contradiction national legal framework– Not material to provider
Signing up to Code
Overview of process
Request to start evaluation from provider
Initial contact and queries
Sign up to Code
Completion & submission self-assessment tool
Pre-evaluation phase
Implement Code
Overview of process
Review justification for non-applicable clauses
Check documentation
Review compliance with clauses
Submission of recommendation
Evaluation phase
Overview of process
Decision on award
Provision post-award decision support and advice
Provider addresses non-compliance with clauses
Amendments reviewed & decision on award
Post-evaluation and post-award phase
Thank you
Prof. Karl Dayson
Executive Director
Community Finance Solutions
T: +44 (0)161 295 2827