The Governance of Not-for-Profit Micro Finance Institutions: Lessons from History

This paper uses a historical parallel found in savings banks to identify and present corporate governance lessons for not-for-profit MFIs today. It is guided by stakeholder and agency theories. It highlights the need for a broader and more stakeholder-based understanding of corporate governance. It also demonstrates that historical studies can provide governance lessons for today. The paper states that better corporate governance has been identified as a key factor to enhance the viability of the microfinance industry, but recent literature on the subject struggles to identify corporate governance mechanisms that influence MFI performance. Various studies find that best practice governance mechanisms from regular firms in mature markets do not have much influence on MFI performance. They indicate a different and more original approach to identify and better understand the governance mechanisms that can enhance MFIs' long-term survival. Findings include:

• Monitoring by bank associations, depositors, donors, and local communities was important in securing the survival of savings banks;
• External governance was absent, while product market competition became a major factor in disciplining managers;
• Willingness to expand their mission to serve wealthier customers helped banks become financially viable.