Governance Practices of Ethiopian MFIs: A Study of Selected Units
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Date
2007-03
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A.A.U
Abstract
The history of formal microfinance sector m Ethiopia has counted a
decade of age. During its existence, the sector has achieved success with
respect to reaching and satisfying the micro financial need of the
relatively marginalized section of the society. Yet, there exists
tremendous unmet demand for the service. In addition, the sector since
its existence has been facing a number of challenges hindering its growth
and sustainability. Among these challenges, the issue of governance is
one of the most pressing challenges facing the sector.
This study examines the practices of governance among MFIs with a
focus on ownership structure and corporate governance. To this end, this
paper made a study on 16 sample MFIs drawn from the sector and
identified a number of weaknesses associated with the governance
practices of the surveyed MFIs. Accordingly their ownership composition,
effectiveness of board composition, functions and responsibilities are not
in line with best microfinance governance practices.
The form of ownership that almost all MFIs exhibited i.e. nominal
shareholding has been found to be unconducive for effective exercise of
governance in relation to ensuring commitment and putting in place
proper responsibility and accountability among boards that are drawn
from shareholders. Thus, local governance standards, code of conduct
for boards and risk management guidelines are so far non-existent in the
sector.
In addition, the poor functioning of dividend policy, performance
management system are among the weaknesses revealed in the study. In
light of the findings of the study, recommendations that could address
the observed weaknesses are forwarded.
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Keywords
Governance Practices, Ethiopian MFIs