Microfinance Banana Skins 2008 - Citigroup

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C S F I / New York CSFIMiddle EastBiggest risksFastest risers1 Staffing 1 Competition2 Capital availability 2 Mission drift3 Competition 3 Staffing4 Inappropriate regulation 4 Capital availability5 Interest rates 5 Interest rates6 Mission drift 6 Unrealisable expectations7 Managing technology 7 Inappropriate regulation8 Corporate governance 8 Political interference9 Macro-economic trends 9 Strategy10 Political interference 10 Credit riskMiddle East respondents, who were mostly practitioners, showed less concern than other groups withhigh level management issues, apart from staffing shortages which are a problem the world over.Instead they focused on the growing competition in their region for business and capital, and the riskthat MFIs will be diverted from their missions by mounting commercial pressures. MFIs in this groupfeel vulnerable to growing political interference. They also felt the most exposed of any group toeconomic trends at the macro level.A full breakdown of the responses by type and region is given in Appendix 2 on p 38.14 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk
C S F I / New York CSFI1. 1. Management qualityThe The uneven quality of of management in in microfinance institutions (MFIs) is is the thegreatest risk risk facing the the industry, according to to respondents to to this this survey. In In all all the theregions in in which they they operate, MFIs are are being stretched by by hectic rates rates of of growth, by bythe the growing complexity of of their their business, and and by by pressures to to become morecommercially-motivated. One One respondent warned: “MFIs which lack lack managementbreadth and and depth will will remain higher risk risk institutions and and are are not not likely to to emerge as aswinners in an an increasingly competitive environment.”Concerns about management quality were were strongest among investors and and analysts of ofthe the microfinance sector (who placed this this <strong>Banana</strong> Skin Skin at at No.1 and and No.2 respectively)as as opposed to to practitioners who who ranked it it No No 7. 7. Julie Julie Earne, an an investment officerwith with the the International Finance Corporation in in South Africa, said said there were were “not “notenough good managers and and a a growing market.” Geographically, concerns were werehighest in in Europe, North America, Africa and and Asia.South America was was least leastconcerned, placing it it No No 16. 16.MFIs with poormanagementcould be be thelosersMuch of of the the worry aboutmanagement quality focused on onManaging changethe the fact fact that that MFIs tend tend to to be bedominated by by “visionaries” who whoThe The principal risk risk is is overheating: high high and and are are strong on on charisma but but less lessunrealistic expectations for for long long term term returns, so so on on management skills and andexcess investor liquidity and and appetite, and and a astrategic flexibility.Manylack lack of of clarity about the the difference betweenmainstream investors and and those with with a a socialrespondents felt felt that that MFIs riskedmotivation.getting trapped between their theirElizabeth Littlefieldsocial and and commercial objectivesChief executive officerand and succeeding at at neither as as the theConsultative Group to to Assist the the Poor Poorindustry changed around them.A A US US practitioner saw saw MFIshaving “difficulty in in balancingbusiness and and social missions, leading to to tension, unclear focus, and and inefficiencies inoperations.” Several respondents felt felt that that MFIs were not not investing enough in in MF MFmanagement skills because the the philanthropic culture of of the the industry emphasiseddedication rather than than professionalism.This This risk risk was was closely linked to to concerns about weak corporate governance (see (see No No 2) 2)and and staffing (No (No 5). 5).However the the risks risks of of poor poor management are are not not seen seen as as rising: this this <strong>Banana</strong> Skin Skin cameonly only No No 17 17 on on the the risers list. list. Indeed, many respondents saw saw it it falling as as the the problemwas was increasingly recognised and and tackled.Leonor Melo de de Velasco, executivepresident of of the the Fundacion Mundo Mujer in in Colombia, said: said: “It “It is is being strengthenedby by training.” Another respondent said said he he had had observed “a “a strong performance amongMF MF managers who who have have ‘grown with with their their institutions’.”2. 2. Corporate governancePoor Poor corporate governance is is seen seen an an area area of of high high risk, risk, though more by by investors,analysts and and regulators than than by by MFI MFI practitioners themselves. A A Canadiandevelopment expert said said that that “lack of of governance has has been been a a major risk risk factor in inCSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk 15
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