Corporate Governance and Access to Finance - ESBG

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BOX 2. KENYA POST OFFICE SAVINGS BANK (KPOSB)Corporate GovernanceThe Government of Kenya has adopted as a policy, the applicationof Performance Contracts in the management and monitoring ofthe public service. In the case of KPOSB, the government and theBoard signed a mutually agreed document that lists the key resultsareas, the levels expected towards the achievement of agreed targets,and how the performance will be measured. Board membersand first and second level managers are evaluated according to thissystem. Other staff have been put on performance contract as well.This improves service delivery to the public by ensuring that seniormanagers are accountable for specific results. This monitoring isparticularly important given that all board members are nominatedby the government, which in the absence of a clear objective couldlead to political interference, a major threat for a successfullyfunctioning government-owned financial institution.Access to FinanceKPOSB’s mandate is to “provide accessible and sustainable banking”.Recent developments in the Kenyan financial sector have negativelyaffected KPOSB, which has lost market share. The three events thathave severely impacted the Postbank are (i) the deterioration in thesavings capacity of the low-middle income segment (KPOSB’s targetgroup) due to the post-election events in 2008 and the globalfinancial crisis; (ii) the success of the Mobile banking operatorM-PESA, a company which has provided Kenyans a cheaper andsafer method to transfer money through cell phones; and (iii) theenactment of the Deposit taking Microfinance Act that allows MFIsnot only to give credit but to collect deposits as well To keepproviding accessible banking services, KPSOB has modernized itself,moving from savings book to cards. It has reached an agreementwith M-PESA to become one of its banking agents andimplemented a new business model to improve efficiency andcustomer service. In the new business model customers can use adebit card to transact at the Point of Sale Terminals. To supplementits network it has also reached agreements with Kenswitch andPesaPoint to add more than 650 ATMs to the network. KPOSB hasinstalled 26 ATMs of their own.36
KPOSB is also part of the Bill & Melinda Gates Foundation initiativeto double the number of savings accounts among the poor.The KPOSB project’s objective is to add 1.5 million customers(of which 1 million can be classified as poor) to the customer baseby expanding a small existing pilot network of non-postal agentsinto a major new service channel in underserved rural areas.Corporate Governance and Access to FinanceKPOSB’s performance contract provides an excellent example oftools that promote sound Corporate Governance linked to financialinclusion. KPOSB’s long term goals are included in a 3-year strategicplan and the short-term goals are specified in the annual ActionPlan. The Performance Contract imposes quantitative and qualitativetargets that emphasize the development impact of the bank policyon Access to Finance (for example, in 2009, these objectives includea 30 percent increase in the deposit base, a 19 percent increase inthe number of deposit accounts, the introduction of two newmarket driven products and the expansion of the KPOSB network).This is complemented by targets in terms of bank’s sustainability(like return on investment and debt-to-equity ratio). These specifictargets are the basis for evaluating the Bank’s compliance with theAction Plan on an annual basis. Progress reports are prepared on aquarterly and annual basis. Thus, performance contracts align thebusiness strategy with the mandate of the company and makeboard directors and senior management accountable for fulfillingthis mandate. When targets are not met, clarifications andcorrective actions/measures are provided. If they are notsatisfactory, the Managing Director’s would be sanctioned includingtermination of contract. The Performance Contract system alsooffers bonus incentives for excellent performance.2.5. The role of supervision and regulationBanking institutions depend on trust, and trust (as severely revealed in therecent crisis) depends on risk control and ultimately on the support by thegovernment (the taxpayer). Mechanisms of public support like depositinsurance or the lender of last resort facilities require an adequate controlof risks by financial institutions, hence the need for a detailed regulation,and the related banking supervision structure.37
Page 6 and 7: BoxesBox 1. German Sparkassen 27Box
Page 9 and 10: EXECUTIVE SUMMARYBackground and obj
Page 11 and 12: nnAccess to Finance in enshrined in
Page 13 and 14: Chart A.Corporate Governance, Acces
Page 15 and 16: nThe study also shows that Corporat
Page 17 and 18: 1. INTRODUCTION1.1. Focus and objec
Page 19 and 20: WSBI members are by definition acco
Page 21 and 22: For the particular case of developi
Page 23 and 24: 2. THE LINK BETWEENCORPORATE GOVERN
Page 25: Table 2. Main features of the Missi
Page 28 and 29: Access to financeSparkassen promote
Page 30 and 31: All these examples illustrate how p
Page 32 and 33: In the case of Peru, the profits th
Page 34 and 35: Among the WSBI institutions that re
Page 38 and 39: The fact that the banking system is
Page 41 and 42: 3. CORPORATE GOVERNANCE -CONCEPTUAL
Page 43 and 44: Figure 2. Sound Governance of Finan
Page 45 and 46: As can be seen in the figure above,
Page 47 and 48: nnnAt the same time, the distance a
Page 49 and 50: The first two elements (the ownersh
Page 51 and 52: nHowever, this does not mean denyin
Page 53 and 54: Cooperatives are similar to mutuals
Page 55 and 56: 3.4. FoundationsFoundations do not
Page 57 and 58: 3.5. Good Corporate Governance prac
Page 59 and 60: F. DISCLOSURE AND TRANSPARENCYPrinc
Page 61 and 62: 4. ACCESS TO FINANCE -CONCEPTUAL FR
Page 63 and 64: 4.1. Financial deepening and improv
Page 65 and 66: The board does not have any executi
Page 67 and 68: In other words, sustainable financi
Page 69 and 70: The following table shows how the W
Page 71 and 72: The fourth dimension refers to the
Page 73: Table 8. Access to Finance in the f
Page 76 and 77: Only 27 members established in 21 c
Page 78 and 79: nnDCI (Depth of credit information
Page 80 and 81: 5.2. Corporate Governance and Acces
Page 82 and 83: 5.2.1. Corporate Governance and Ave
Page 84 and 85: Chart 8.Specific Corporate Governan
Page 86 and 87:
5.2.2. Corporate Governance and Ave
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Chart 13. Corporate Governance comp
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Chart 16. Corporate Governance Inde
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Chart 19. Specific Corporate Govern
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ANNEX 1: REVIEW OFTHE LITERATUREThe
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Even among the relatively narrow un
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Figure A.1. Structure of agents' re
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The table captures the essence of s
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A case study built by Clarke et al
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A very recent contribution to the d
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For example, in Latin America, WSBI
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The paper examines whether a poor e
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For the survival of microfinance in
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ANNEX 2: CASE STUDIES 32CASE STUDY
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It is one of the major characterist
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Although Sparkassen are legally and
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Figure A.2. Corporate Loans Market
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Financial education is also an impo
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Corporate GovernanceKPOSB is wholly
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Among the initiatives that the gove
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Related to the concession of credit
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OPERATIONS1. Deposit Base: It was p
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Corporate GovernanceThe Central Ban
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To address the problem of capital,
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Financial inclusion ranges very hig
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CASE STUDY 4:SPANISH SAVINGS BANKS
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The uniform financial regulation of
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Figure A.3. Governing Bodies - Span
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The web-based tool www.rededucacion
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On the liability side, CMAC offer m
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A specificity of CMAC is that the m
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Table A.3.MissionMissionCMAC AREQUI
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As of September of 2009, the twelve
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Furthermore, the consensus culture
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ANNEX 3: QUESTIONNAIREQUESTIONI. Ge
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ANNEX 4:THE HONOHAN INDEX 43COMPOSI
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COMPOSITE MEASURE OF ACCESS TO FINA
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ANNEX 5:QUANTITATIVE RESULTSCountry
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Overall Corporate Governance IndexO
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REFERENCES- Andrianova, S., Demetri
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- FSD Kenya (2009), Financial Secto
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- World Bank (2006) The Role of Pos
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WSBI - ESBG - The Global Voice of S
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