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Council of Microfinance Equity Funds Issues New Guidelines for Corporate Governance

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Publication Updated and Expanded to Discuss Social-Performance Management, Risk and Crisis Management, Responsible Exits, Aligning Incentives and More

BOSTON, Aug. 14, 2012 /PRNewswire via COMTEX/ — The Council of Microfinance Equity Funds (CMEF), a membership organization of leading microfinance equity investors, today announced the release of a new, enhanced version of its corporate governance manual, “The Practice of Corporate Governance in Microfinance Institutions.”

Given the importance of good governance to the microfinance industry, the CMEF’s “Governance Guidelines,” first released in 2005, have recently been updated and expanded to include more in-depth discussions of social-performance management, risk and crisis management, responsible exits, aligning incentives, and formal documentation.

“Good governance is the ability of board members to monitor the status of the organization, make good strategic decisions, and hold executives accountable for their execution,” said Elisabeth Rhyne, managing director of the Center for Financial Inclusion at Accion. “Ultimately, that comes down to the quality of the board members, the culture and practice of the board, and the power relationships among board members and executives.”

Experts acknowledge that the need for good governance has grown increasingly important for microfinance institutions (MFIs), especially in the wake of widespread financial crises. Daniel Rozas affirms, in “Weathering the Storm,” a paper released by the Center for Financial Inclusion in 2011, that “Good governance is the ultimate backstop for crisis prevention and management.”

The CMEF Governance Guidelines are meant to provide candid, precise and practical guidance in the field of corporate governance specifically tailored to MFIs, and to offer concrete instruction to MFI boards. While many of the recommendations in the guidelines, such as how to structure an effective board, are applicable to all types of financial institutions, MFIs have a number of distinguishing characteristics that affect the implementation and operation of governance.

The Governance Guidelines address how MFIs can best maintain a focus on social outcomes, and how MFIs in transition to private or deposit-taking institutions can develop ideal governance structures. Good governance is not automatic, and MFIs must continually work to develop good governance over time. The CMEF hopes that these Governance Guidelines will serve as a useful tool for MFIs to use in the development of good governance practices.

About the Council of Microfinance Equity Finds

Since 2005, the Council of Microfinance Equity Funds (CMEF) has served as a valued forum for leading microfinance equity investors who are pursuing double-bottom line goals. By helping Council members deepen their relationships with their investee MFIs, enhance the performance of their investments, and develop best practices and standards, the CMEF aims to ultimately strengthen the microfinance industry and advance the expansion of commercial microfinance. CMEF members include: Accion, Accion Investments in Microfinance, AfriCap, Bamboo Investments, Caspian Capital Partners, Catalyst Microfinance Investors, Citi Microfinance, Compartamos, Creation Investments Capital Management, Danish Microfinance Partners, Developing World Markets, Developpement International Desjardins, Equator Capital Partners, FINCA International, Grassroots Capital Partners, Grupo ACP, Incofin Investment Management, Lok Advisory Services, MicroVentures Investment, MicroVest, Norwegian Microfinance Initiative, Oikocredit, Omidyar Network, Omtrix International, Opportunity International, responsAbility Social Investment Services, Triodos Investment Management and Triple Jump. To learn more, visit: www.cmef.com .

Doughnuts Defeating Poverty – NYT.com

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OP-ED COLUMNIST

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Published: July 4, 2012 53 Comments

MASUMBA, Malawi

Damon Winter/The New York Times

Nicholas D. Kristof

Nicholas D. Kristof/The New York Times

Biti Rose Nasoni in the village of Masumba, Malawi.

If you want to understand some of the best new ideas to chip away at global poverty, an excellent place to start is the Nasoni family hut here in the southern African nation of Malawi.

Alfred Nasoni and his wife, Biti Rose, have had seven children in this village of Masumba. Two died without ever seeing a doctor. Alfred and Biti Rose pulled their eldest son out of school in the fourth grade because, they said, they couldn’t afford $5 in school costs for a term. And they farmed only part of their 2.5 acre plot because they lacked money for seeds.

Yet poverty is sometimes romanticized, and it’s more complicated than that. Alfred, 45, told me that even as his children were starving, he spent an average of $2 a week on local moonshine and 50 cents on cigarettes. He added that he also spent $2 or more a week buying sex from local girls — even though AIDS is widespread.

All this hints at an uncomfortable truth: The suffering associated with poverty is sometimes caused not only by low incomes but also by self-destructive pathologies. In central Kenya, a recently published government study found that men, on average, spent more of their salaries on alcohol than on food.

It’s a vicious circle: despair leads people to self-medicate in ways that compound the despair.

Yet there are escape hatches. In 2005, Biti Rose joined a village savings group founded by CARE, the international aid group. These “village savings and loans” are among the hottest ideas in development work. They now serve some six million people in 58 countries.

After recent financial crises, plenty of Americans love to hate banks, but many of the world’s poor don’t have that luxury: more than 2.5 billion people worldwide don’t have a bank account, according to a landmark World Bank report, “Measuring Financial Inclusion.”

The poor typically receive a pile of cash once or twice a year, at the end of a harvest, and then have no good way to save it. That increases the risk that some of it will be squandered.

In some African countries, cellphones are emerging as the new banking system. But here, and in much of the world, the solution is savings groups like Biti Rose’s. She and 19 other members met weekly and each deposited the equivalent of about 10 cents. The money was then lent out to members, and CARE coached them on how to start small businesses.

With a loan of $2, Biti Rose started making and selling a local version of doughnuts, which she initially sold for 2 cents each. “People really liked my doughnuts,” she noted, and soon she was making several dollars a day in profit. Inspired by her example, Alfred began growing vegetables and selling them; he turned out to be a shrewd businessman as well.

Seeing an upward trajectory in the family fortunes, Alfred cut out the girlfriends and curbed his drinking, he says.

Biti Rose and Alfred then had the resources to buy seed and fertilizer for all their own land and to lease an additional two acres as well. These days, they hire up to 10 farm laborers to work for them. In the old days, they harvested less than one bag of corn a year; this year, their harvest filled seven ox carts.

All savers aren’t that successful, of course, but there’s no doubt that the nudge to save money and start businesses can be transformative and self-sustaining. CARE moved on in 2009 to take its model to more needy areas in Malawi, but the savings groups around this village multiplied anyway. Other farmers envied Biti Rose and Alfred replacing their leaky grass roof with a tin one, and they decided to start their own savings groups. The idea has even spread, without CARE’s help, across the border to villages in Mozambique.

Yet I think there’s something going on here beyond microsavings and entrepreneurship.Esther Duflo, an economist at the Massachusetts Institute of Technology and co-author of an exceptionally good book called “Poor Economics,” argues that outside interventions sometimes work partly when they give poor people hope. That’s precisely what I’ve seen in many countries: Assistance succeeds when it gives people a feeling that a better outcome is possible, and those hopes become self-fulfilling as people work more industriously and invest more wisely.

For Alfred and Biti Rose, their hopes are now focused on their younger children (the oldest has married). Biti Rose never went to school at all, but she is planning to send her younger children to university.

She is also planning future purchases, including the first television in the area. But don’t think Biti Rose is going to kick back. She sees the TV as an investment.

“I’m a businesswoman,” she said firmly. “I can’t give anything away. If there’s a soccer match or something, anybody who comes in my house to watch will have to pay a fee.”