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C S F I / New York CSFImany MFIs and and will will continue to to be be an an area area of of concern for for the the coming years”. The Theperceived trend in in this this risk risk is moderately upwards.Investors were particularly concerned.“Too often, basic concepts of of corporategovernance are are little little known or or neglected,” said said Geert Peetermans, chief investmentofficer of of Incofin in in Belgium. At At the the end end of of the the day, day, the the risk risk is is that that MFIs will willforego funding if if they they lose lose the the confidence of of their their investors.Shortcomings typically take take the the form form of of low low calibre personnel, lack lack of of experience,cronyism and and poor poor transparency.Khirod Chandra Malick, chairman of of the the BharatIntegrated Social Welfare Agency in in India, said said this this whole area area “needs moreprofessionalism.”Many of of these weaknesses have have been been shown up up by by the the demands of of commercialinvestors. But But this this discipline has has also also had had the the beneficial effect of of forcing MFIs to toraise raise their their game.Hanns Martin Hagen, senior financial sector economist at at the theKfW Entwicklungsbank in in Germany, said: said: “Many MFIs have have opened up up to to outsideprivate investors and and now now have have a a much more transparent corporate governancestructure.”3. 3. Inappropriate regulationPoor regulatorystructures areblocking changein in many countriesThe The lack lack of of appropriate regulatory structures for for MFIs in in many parts of of the the world is is a athreat to to their their healthy development.Alejandro Soriano, deputy director of of the theCorporación Andina de de Fomento in in Venezuela, said: said: “Many countries do do not notprogress due due to to the the lack lack of of prudential regulation”, a view a view which was was widely echoedin in Latin America, Africa, the the Middle East East and and the the Far Far East. A A Cambodianrespondent said said the the central bank bank was was “too “too slow slow in in regulating new new areas that that need needurgent attention (savings, insurance, etc)”. Asia Asia was was the the only only region in in which this thisBanana Skin Skin did did not not feature in in the the top top ten. ten.According to to comments from from respondents, inadequate regulatory structures are arerestricting MFIs’ operating freedoms and and creating legal legal uncertainty, particularly by byblocking their their efforts to to transform themselves from from NGO status to to fully-fledgedbanks, or or alternatively by by forcing them to to make the the change against their their will will (see (seebox). A A respondent from from Angola said: said: “I “I believe that that MFIs must must be be clearly definedwithin the the legal legal framework to to obtain the the clear clear identity which is is necessary in dealingwith with banks and and other investors”.At At another level, respondents complained about the the “hassle factor” of of petty rules ruleswhich looked like like political interference in in disguise. Money laundering regulationswere a a particular annoyance.Corruption, delays, and and unnecessary cost cost were were extrahazards. A A US US investor said said that that “the “the relative lack lack of of sophistication and andinconsistency of of many regulators in in sub-Saharan Africa is is going to to stifle growth”.Poor Poor regulation was was attributed variously to to incompetence, bureaucratic heavyhandedness,or or simple failure to to keep keep up up with with a a fast-moving industry. In In India, an aninvestor said said that that it it was was clear clear that that regulators “can “can afford to to ignore MFIs – – as as they theyhave have done done for for years”, though this this could not not continue as as MFIs became moreimportant players on on the the financial landscape.16 CSFI / New York CSFI E-mail: info@csfi.org.uk Web: www.csfi.org.uk