IFC’s report, Corporate Governance for Financial Inclusion — Insights for Boards of Microfinance Institutions: Managing Current Issues, Crisis, and Change, reflects on 20 years of experience in the evolution of microfinance and its potential for digital transformation. Through a comprehensive analysis of a myriad of risks, challenges and opportunities facing the financial inclusion industry today, the report presents a renewed outlook for boards serving in institutions that are navigating through a rapidly changing world.
Based on interviews and first-hand experiences of IFC board directors globally, the report culls selected case studies and practical lessons learned. Attention is given to core areas of board responsibility, including: risk and crisis management; change management, such as institutional and digital transformation; the importance of the customer, including the potential role of investors in catalyzing private sector investments or new business models in responsible digital financial inclusion. To effectively guide their institutions, boards will need to deepen their traditional tools, refine existing or introduce new ones to achieve sustainable and prudent growth.
Specific risks outlined in the report include, among others: (1) reputational and operational risks due to fraud, weak agent network management, ineffective customer service and/or poor product uptake; (2) credit risks due to weak approval processes or collection procedures; (3) liquidity risks due to local currency devaluation, combined with related funding constraints; and (4) market risks due to weak or lack of regulations for digital finance and fintech services, or because of fragmented consumer protection and financial education frameworks. Boards play a vital role in mitigating risks, managing institutional crises, transforming institutions through the adoption of new business models, promoting responsible finance and ultimately bringing greater value to all stakeholders.
Today, the role of the board in financial institutions remains essential, if not more so to achieve financial inclusion. Globally, financial institutions are facing numerous challenges and opportunities brought about by changing market conditions, increasing competition, and evolving innovations in digital finance. These are fundamentally altering the way many do business and interact with their customers.
IFC’s role as private sector investor in emerging markets is more critical than before – together with the World Bank – in creating markets and opportunities towards Universal Financial Access by 2020 and broader Sustainable Development Goals. This requires a refreshed, forward thinking approach for industry collaboration between private sector, providers and public sector leaders to achieve a more dynamic and nimble response for today’s risks and opportunities.
For the full report, click here.