As the microfinance industry grows and becomes more complex, governance plays an increasingly important role in managing sound institutions and preventing crises. Corporate governance provides the framework through which an institution’s diverse stakeholders—investors, board members, management, and employees—set the strategic vision, monitor performance, and manage risks. An institution’s governance structure helps mediate the interests of various stakeholders and protects the long-term health of the institution.
Good governance can help an institution fulfill its mission, increase efficiency, and improve its ability to attract customers and investors. New products, markets, providers, and financing strategies require a clear strategic vision and decision-making guidelines, agreed on by the institution’s various stakeholders. Managing the diverse objectives, expectations, and roles of investors, board members, management, and staff can be challenging, but institutions that invest in strong governance structures and processes will be better placed to navigate today’s complex operating environment.