Governance Practices of Ethiopian MFIs: A Study of Selected Units

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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.



Governance Practices, Ethiopian MFIs