Professional Documents
Culture Documents
Oesterreichische Entwicklungsbank AG
www.mfi-upgrading initiative.org
We would like to acknowledge valuable contribution and suggestion by the Team Leader
Ms. Janis Sabetta, which greatly enriched this manual.
This Sample Manual is to be used as Guide to MFIs in developing their own Manuals. What is
contained in the Manual is not conclusive and each MFI should adapt what is relevant to their
Institutions situations. All Board Members should undergo training in the use of the manual and
their various roles and responsibilities especially financial management, credit risk management
and Governance of Microfinance Institutions.
Each Manual should be a living tool for the Board and the Chief Executive, and should be
frequently updated by the Board. Board Manual is aimed to assist the governing body to fulfill its
responsibility according to ambitious, achievable, and measurable governance performance
targets. It should also be clear, precise and easy to understand and interpret.
Each MFI should use this Sample Manual a guide only and while adapting it, incorporate their
respective policies, legal entity of the institution and Legal requirements if any. Board Members
should understand the legal Liabilities they face/will face as regulated MFIs (for those in the
process of Transformation).
The Board should be large enough to complete its works effectively, help secure funding as
needed, advance the reputation of the MFI, provide continuity and ensure that quorums are
easily met for meetings, yet small enough to allow substantive decisions to be made and for
Board Members to establish a relationship of trust and accountability with each other.1
Joana Ledgerwood and Victoria White. 2006. Transforming Microfinance Institutions Providing Full Financial
Services to the Poor. P.g. 228
INTRODUCTION ................................................................................................................................... 4
1.1
BACKGROUND INFORMATION OF THE INSTITUTION ............................................................................. 4
1.2
MISSION AND VISION........................................................................................................................ 4
1.3
GOALS AND OBJECTIVES.................................................................................................................. 4
1.4
DECLARATION ................................................................................................................................. 4
1.5
PURPOSE OF THE MANUAL ............................................................................................................... 4
1.6
HOW THE MANUAL IS USED .............................................................................................................. 4
MISCELLANEOUS PROVISIONS...................................................................................................... 22
5.1
CHEQUES...................................................................................................................................... 22
5.2
FISCAL YEAR: ................................................................................................................................ 22
5.3
NOTICE ......................................................................................................................................... 22
5.4
W AIVER OF NOTICE ....................................................................................................................... 23
5.5
RESIGNATIONS .............................................................................................................................. 23
AMENDMENTS................................................................................................................................... 25
INTRODUCTION
Date
Signature
No transfer shall be made which is inconsistent with the law and the provisions
BOARD STRUCTURE
3.1 Overview
The XYZ Board shall consist of the board chair and secretary, Executive Committee, Credit
Committee, Audit Committee and Asset and Liabilities Management Committee, Human
Resource Committees and Nominating Committees.
3.2 Size and Board Composition
a. Size-The business and affairs of this MFI shall be managed by its Board of Directors, not
less than five (5) and not more than nine in numbers2. They shall be elected by the
shareholders at the annual meeting of shareholders of the MFI3, and each director shall
The Number varies from one institution to the other but has to be at least 5 and is usually an odd number. In
determining the right size a number of factors should be considered. Large enough to fulfill all functions and
small enough to ensure trust, accountability and good timely decision making.
3
Respective Institutions to adapt their own mode of electing/selecting Board Members in the Manual
With deep commitment to the institutions mission and shares the same values
as those of the Institution
I.e. Central MFI of Kenya, MFI of Uganda etc for the regulated MFIs and those in t he process of Transformation
into regulated MFIs.
Establishing policy, directing the activities of the elected officials and committees, and
approving all action pertaining to the business of XYZ.
Acting honestly, and maintaining confidentiality of information shared with and among
Board Members
Exercising the degree of care and diligence in the discharge of their duties that a
reasonable person in a like position would exercise in the microfinance institutions
circumstances.
Giving necessary attention to the affairs of the microfinance institution. This also
includes exercising a degree of supervision over officials of the company.
Being liable for all acts arising from the performance of their duties as directors of a
microfinance institution.
Being accountable to the shareholders for all the activities of the microfinance institution.
Balancing Commercial Objectives and Social service Obligation by ensuring that they
are clearly documented
Appointing the right people with the right skills for all jobs.
Appointment of the CEO through a competitive selection process and in accordance with
the objectives of the microfinance institution.
Approving a written code of best practice setting the ethical and behavioral expectations
of both the directors and employees.
b. Legal Obligations
The XYZ MFI Board shall ensure that the:
8
Institution complies with its articles of incorporation, bylaws, and internal policies
and procedures.
Are keenly aware of the degree of responsibility and immunity provided for them by
local law.
c. Strategic Direction
XYZ Board shall ensure that:
The institution has a formal vision and mission statement that clarifies the purpose of the
institution
The vision and mission is understood and provides management with direction and an
enabling environment to fulfill the same.
Review the vision regularly every 3-5 years and amend the vision statement if necessary
to respond to a changing environment or shifting priorities.
Effective strategic planning, the management prepares the plan and the board overseas
and approves the plans.
o
d. Fiduciary8
XYZ Board shall ensure that:
The institutions properties are managed in a manner that is consistent with agreed-upon
values and goals
Has adequate resources to implement the agreed upon plans
Understanding the short- term and long term financial position in relation to
the strategic plan
A fiduciary is a person or group holding assets in trust on behalf of another person or group
Guarantees the long-term viability in balancing between long term and short
term objectives on use of funds.
e. Oversight
The XYZ Board shall:
Evaluates the institution performance against other MFIs that are similar based on age
and size of the institution, its target market and the region in which it operates.
Internal risks include portfolio deterioration, fraud, over expansion and client
desertion.
External risks e.g. natural calamity, civil strife, financial crisis and government
intervention
Board should establish a system that monitors early warning signals and ensures
that the MFI operated prudently in such challenges.
Usually depends on the legal entity of the MFI and regulation of the Country it operates
10
Work with the Managing Director, Board Officers, Committee Chairs and Company
Secretary to develop the agendas for board of directors meetings, and presides at all
board and business meetings
Works with the board of directors and paid leadership, in accordance with Policies, to
establish and maintain systems for:
Planning the human and financial resources for XYZ and for setting priorities for
future development and growth
Reviewing operational and service effectiveness and setting priorities for future
development and growth
Be directly responsible to the board of directors for the administration of the XYZ
Perform any other duties that are necessary for the success of XYZ
Makes decisions that the board has assigned to it and addresses policy matters
that the board has delegated to it;
Highlights agenda topics that the full board should discuss; and
10
Adapted from the Regulations from the Kenyan Microfinance Act of 2006 with minimal modifications
12
Monitoring incidences of non-compliance with the Act and regulations issued there
under as well as any other relevant legislations and regulations, and advising the
board on the best solutions;
Monitoring the ethical conduct of the institution and developing the code of conduct
and ethical
To review and assess the integrity of the internal and risk control systems;
To set out the nature, role, responsibility and authority of the risk management
function of the institution;
Review and oversee the overall lending policy, including monitoring and risk
management tools;
Ensure that there are effective procedures and adequate resources to identify and
mitigate credit risk;
Monitor and evaluate all issues that may materially impact on the present and future
quality of the loan portfolio and credit risk management;
11
Delegate and review lending limits to the sanctioning arms of the institution;
Adapted from the Regulations from the Kenyan Microfinance Act of 2006 with minimal modifications
13
sanctioning credit;
Ensure that the credit policy and risk lending limits are reviewed at least once on an
To monitor limits on loans to deposit and loans to capital ratios as well as the
percentage on a particular deposit category as set by the board.
To monitor limits on maximum and minimum maturities for all categories of assets
and liabilities set by the board;
To monitor limits on the sensitivity of the net interest margin on changes in market
interest rates as set by the board;
To monitor the institutions policies, procedures and holding portfolio to ensure that
it achieves its goals; and
12
Adapted from the Regulations from the Kenyan Microfinance Act of 2006 with minimal modifications
14
Handle staff related problems such as law suit or grievance against the institution
4.1
Appointment/Election of Board Members
Appointment of the Board of Directors shall be appointed/elected by13..Each Name
forwarded for election/appointment for the post of Board Member must satisfy the minimum
criteria as set out in sub-section 2.3etc etc.
13
Each MFI to clearly outline their own procedures for appointment/election of Board members
15
Every board member shall receive a copy of the board manual together with a letter of
appointment on first appointment
Every board member shall receive copies of all policy documents including organization
policy documents, personnel and financial manuals on first appointment and every time
these are reviewed.
To bind themselves to uphold, honor and respect the code of ethics of the organization on
first appointment and to resign where their actions are called into question
To become familiar with and committed to the major responsibilities of a governing board:
To devote time to learn how XYZ functions its uniqueness, strengths and needs its
place in the industry.
To carefully prepare for, regularly attend, and actively participate in board meetings and
committee assignments.
To accept and abide by the legal and fiscal responsibilities of the board as specified by
bylaws, policies and regulations.
To vote according to ones individual conviction, to challenge the judgment of others when
necessary; yet to be willing to support the decision of the board and work with fellow board
members in a spirit of cooperation. To recognize that the board Chairman alone speaks for
the board.
To understand the role of the board as a policy-making body and to avoid participation in
administration policy.
16
business (e.g., responding to staff and board member grievances, responding to inquiries
concerning the status of a managing director search, etc.)
To comply with conflict of interest policy and disclosure developed by the board.
To refrain from actions and involvement that might prove embarrassing to XYZ and to
resign if such actions or involvement develop.
To make judgments always on the basis of what is best for XYZ as a whole.
Ensure that all information which is confidential or privileged or which is not publicly
available is not disclosed inappropriately
Ensure that all non-public information about other persons or firms acquired by XYZ
personnel in dealing with outside firms on behalf of XYZ is treated as confidential and not
disclosed.
Each board member has a duty to place the interest of XYZ foremost in any dealings
with XYZ and has a continuing responsibility to comply with the requirements of this
policy.
The conduct of personal business between any board or committee member and XYZ
and any of its affiliates is prohibited.
Board or committee members may not obtain for themselves, their relatives, or their
friends a material interest of any kind from their association with XYZ.
If a board member has an interest in a proposed transaction with XYZ in the form of a
significant personal financial interest in the transaction or in any organization involved in
the transaction, or holds a position as board member, employee or officer in any such
organization, he or she must make full disclosure of such interest before any such
discussion.
17
Any board or committee member who is aware of a potential conflict of interest with
respect to any matter coming before the board or committee shall not be present for any
discussion of or vote in connection with the matter.
4.6.2 Provisions
It is Standard Microfinance Bank policy to maintain adequate provisions for all doubtful debts in
the credit-risk portfolio. On a quarterly basis, the adequacy of the provision shall be reviewed by
the Board Credit Committee.
4.6.3 Write Off Policy
All or a portion of classified as a loss within 9015 days of their being classified as loss shall be
written off if there are no recoveries within that period. The decision to write off the loan will be
reached at after all efforts to recover the loan are unsuccessful and all or part of the loan is
deemed uncollectable or no realistic prospect of recovery exists.
14
This shall act as an example only, thus every MFI should adapt their own lending approval limits as per their
existing credit policies and regulatory requirements
15
18
Whether there was compliance with all relevant laws, rules and regulations.
Whether there is convincing evidence that the decision was not irrational, arbitrary or
capricious.
Whether, in cases of discharge, there existed a legitimate business reason for the
discharge.
Because of the potential personal privacy interests involved in the subject matter of many
grievances, grievance hearings will be closed unless the grievant and any other participants in
the hearing waive their right to individual privacy. Only XYZ MFI Personnel Board members, the
grievant, management, and any witnesses called by the Board or either party will be allowed to
19
All press releases and other promotional materials are to be approved by the Board or
its designee prior to dissemination. Failure to comply with XYZ media policy shall be
grounds for disciplinary action.
4.11
Removal Policy
a) Any director or the entire Board of Directors may be removed, with or without cause, by
the holders of a majority of the shares then entitled to vote at an election of directors,
except that when cumulative voting is permitted, if less than the entire Board is to be
removed, no director may be removed without cause if the votes cast against his
removal would be sufficient to elect him/her if then cumulatively voted at an election of
the entire Board of Directors, or, if there be classes of directors, at an election of the
class of directors of which he/she is a part.
21
increase in the authorized number of directors may be filled by a majority of the directors then in
office, although not less than a quorum, or by a sole remaining director. If at any time, by
reason of death or resignation or other cause, the MFI should have no directors in office, then
any officer or any shareholder or an executor, administrator, trustee or guardian of a
shareholder, or other fiduciary entrusted with like responsibility for the person or estate of
Shareholder, may call a special meeting of shareholders in accordance with the provisions of
these By-Laws.
4.14.2 Resignations Effective at Future Date
When one or more directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation or resignations
shall become effective.
5
MISCELLANEOUS PROVISIONS
5.1 Cheques
All cheques or demands for money and notes of the MFI shall be signed by such officer or
officers as the Board of Directors may from time to time designate.
5.2 Fiscal Year:
The fiscal year shall begin on the16
5.3 Notice
Whenever written notice is required to be given to any person, it may be given to such person,
either personally or by sending a copy thereof through the mail, courier, by fax, charges prepaid, to his address appearing on the books of the MFI, or supplied by him/her to the MFI for the
16
22
The Board Audit Committee in turn shall report to the Board the financial and operational
situation of the institution every quarter
The Finance manager can be invited to the Board meeting to explain the financial ratios
and their interpretation to the Board whenever necessary
Income Statements
23
Balance sheet
Board understanding and adherence to policies and procedures set forth in the
manual
Boards understanding of the legal and regulatory framework within which the
institution operations
24
7
AMENDMENTS
Amendments
These Policies and Procedures may be amended or repealed by the vote of Board members at
any regular or special meeting of the Board, duly convened after notice to the Board of that
purpose.
8 APPROVAL OF THE MANUAL
The policies and Procedures contained in this manual has been read and understood by the
Board Members of XYZ MFI and all Board Members agree to abide by them. These Manual is
thereof approved and adopted by the Board on this day of.month..year
Signature.Date.
Name of the Board Member
Signature.Date.
Name of the Board Member
Signature.Date.
Name of the Board Member
Signature.Date.
Name of the Board Member
25
No. of
Loans/
ACs
Outstanding
Loan
Portfolio
0 days(Normal)
1-30
days(Watch)
31-60
days(Substandard)
61-90
days(Doubtful)
More than 90
days(Loss)
Total
Rescheduled/
Renegotiated
loans
0 days(Normal)
1-30
days(Watch)
31-60
days(Substandard)
61-90
days(Doubtful)
More than 90
days(Loss)
Required
Provisioning
1%
1%
5%
Required
provisioning
Amount
Security
Held
Minimum
Provision
%
Portfolio
At
Risk
25%
75%
100%
1%
5%
25%
75%
100%
Grand Total
Authorized Signatory:
Name of Officer.
Designation..
Signature
Date..
26
NO
Such beliefs, values, philosophy, mission and vision are set and are
consistent with the MFI status
The board ensures that the organization has sufficient and appropriate
resources to achieve its strategic goals
The board has an operating plan that specifies its functions, activities
and objectives
Declared
Resolved
The letter of appointment defines the roles and functions of the board
and the specific role of each director
28
Joana Ledgerwood and Victoria White. 2006. Transforming Microfinance Institutions The World
Bank, Microfinance Network
Central Bank of Kenya. 2006. The Microfinance Act-No.19 of 2006 Regulations
Nancy Natilson, Pro Mujer Tillman A. Bruett, Alternative Credit Technologies. 2001. Financial
Performance: A guide for Board Members of Microfinance Institutions
29