In 2005, the Council of Microfinance Equity Funds (CMEF) published “The Practice of Corporate Governance in Shareholder-Owned Microfinance Institutions.” These “Governance Guidelines” were originally developed for two reasons: Lack of guidance tailored specifically for microfinance institutions (MFIs). While many of the principles of governance are the same for all types of institution, MFIs have special characteristics that bear directly on governance. To get beyond generalizations to the practical issues that boards actually face. While governance is an arduous process requiring diplomacy, insight, and even at times courage, it is easy for statements about governance to offer bland bromides. The Governance Guidelines have since been widely used and highly regarded as an excellent source for governance information within the microfinance industry. Over the past seven years, much has changed in the field of microfinance, and good governance has become increasingly important. The Council has therefore updated this reference document to reflect new thinking and resources that have emerged in the microfinance industry around governance since the original version was published. These updates were developed after consultation with fund investors and corporate governance experts, who shared the wisdom of their experiences. This document was drafted by Danielle Donza of the CMEF and Accion based upon this consultative process. The CMEF is particularly thankful for the time and feedback provided by Ira Lieberman of LIPAM International, Elisabeth Rhyne of the Center for Financial Inclusion (CFI) at Accion, the original authors of the guidelines, as well as Alex Silva of Omtrix Inc., Miguel Herrera of Accion’s Frontier Investments Group (FIG), and David Dewez of Incofin.

Microfinance institutions are playing an important role in the delivery of financial services to the poor. Increasingly, these MFIs are for-profit, limited liability companies, the ownership of which is in the hands of multiple shareholders. In most cases, shares are privately held (i.e., not publicly traded). Most such MFIs are licensed financial institutions – finance companies and banks. Many are deposit takers. This statement on corporate governance of MFIs provides practical guidance for stakeholders in governance; investors, board members, and senior managers. Although these Guidelines are aimed primarily at shareholder-owned institutions, much of the material is also applicable to microfinance institutions with different ownership structures, such as nongovernmental organizations (NGOs) and cooperative credit unions.