CSFI Report

CSFI Annual Banana Skins Report on Microfinance

Every year for the last 10 years CSFI, The Centre for the Study of Financial Innovation, conducts a survey and writes a report on the results. The survey is to show what practitioners, investors, analysts, observers, and regulators believe as the top "banana skins" or threats to the microfinance industry. They send the survey all over the world. They show the results from the survey from the people that are surveyed and also the results from regions in the world. I thought this was very interesting and I am going to write about the top risks to the microfinance industry this year. But if you wish to read the whole report the link above will lead you to it.

The number threat or risk to the microfinance industry is management quality. There is much variance in the quality of mangement inn microfinance institutions. In all the regions that MFIs operate in MFIs are being stretched by hectic rates of growth. MFIs are dealing with more complexities in their business and feel pressure to become more commercially-motivated. One of the respondents even warned that any MFIs that do not have good management will fail in these competitive times. The people who were concerned most about management quality are investors and analysts. But the practitioners ranked it 7th in the list of risks. The most concerned regions were in Europe, North America, Africa, and Asia. MFIs are generally run by "visionaries" who are very charismatic but lack good management and organizational skills. As commercializing MFIs becomes more popular MFIs are getting stuck between their commercial goals and their social ones. Without good management these MFIs that are stuck will not excel in either of their goals and will eventually be knocked out by better managed MFIs. But in general this banana skin is not a rising risk but a falling one. People are effectively recognizing this problem and fixing it.

Corporate governance is the second highest ranked banana skin. This is also was a top concern for investors, analysts and regulators and not for MFI practitioners. Many MFIs do not know about basic coporate governance and are generally ignored in these organizations. It is possible that this is because they are worried about getting more investors and getting more clients rather than setting up official corporate governance rules. But investors are very concerned and this lack of corporate governance may lead to loss of confidence by their investors. Some of the shortcomings form of low calibre personnel, lack of experience, cronyism, and poor transparency. Many believe this area needs more professionalism. This is a particularly worrying area for commercial investors. These are the people that are worried about their investments and not about the results that could be shown from them. But there is a bright side to this risk. The risk is forcing people to raise their game and become more professional. Hopefully, this will also lead to better management.

These banana skins reports are very important, in my opinion. They need to analyze these problems and publish them publicly to help MFIs improve their business and help grow the industry. This industry is still young and needs more changes. These problems need to be recognized and addressed effectively. Please take a look at the report it is a great source of information and hopefully many of these MFIs are looking at it to.