Corporate Governance and Access to Finance - ESBG

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The fact that the banking system is a heavily regulated industry hasimportant implications for Corporate Governance. Adequate control ofrisks is a necessity from both the regulatory and the CorporateGovernance point of view. In many countries, banking regulatorshave encouraged the adoption of codes of Corporate Governanceencompassing prudent risk management practices. And in manyemerging and developing countries, the authorities (central banks,banking supervisors), aware of the essential contribution of financialdeepening to the development of the country, have also stimulatedpolicies to foster financial deepening.WSBI members are active part of both strategies: the tendency towardsbetter Corporate Governance practices, through the adoption ofinternational and domestic standards, and – especially in emerging anddeveloping countries – the progress towards financial inclusion.Regulation is a driver of both policies. Although the link betweenCorporate Governance and financial inclusion (from the point of view ofthe regulator) could be weak in some countries, WSBI members, ascatalysers of both lines of action, ensure their connection. All in all,financial regulation – and more broadly public sector policies – couldestablish an additional link between Corporate Governance and Accessto Finance for WSBI members.An interesting example of this connection is the role played by COFIDE inthe recapitalisation of Peruvian CMACs. As they rely only on retainedprofits for their re-capitalisation, CMACs face a challenge – common tomany other savings banks – of insufficient instruments for a pro-activerecapitalisation policy in case of need. COFIDE provides subordinateddebt to CMACs on the condition that they retain as reserves a share oftheir profits above the legal minimum (at least 75 percent instead ofthe 50 percent legal minimum), thus providing a double mechanism tostrengthen the capital base. This recapitalisation allows the PeruvianCajas to pursue their financial inclusion policies that otherwise would becurtailed by insufficient resources.38
Table 4. The link between Corporate Governance and Access to FinanceReference to Accessto Finance in MissionStatementCompliance mechanismsCapitalisation processesGermanyYesMembers of the Boardand the regional principleensure that proximitybanking is taken intoaccount along withprofitability objectives.Only retaining reserves.If no capitalisation isneeded, profits can beallocated to socialactivities in the region.KenyaYesSpecific targets inManagement performancecontracts ensure fulfilmentof the mandate.Reserves retentionand capital injectionsfrom Government.PeruYesThe presence ofrepresentatives of thelocal social, economicand political interestsguarantees that CMACactivities benefitthe local economy.Only retaining reserves.As joint stock corporationsCMACs could in theoryattract capital fromexternal sources.PhilippinesYesNoPost office has onlysubscribed 50% of capital.Capitalisation via retainedearnings insufficient.SpainYesAccess to Financeobjectives not quantitativelystated. None of theCommissions explicitlyevaluates theiraccomplishment.Only retaining reserves.Since 2007 issuance ofcuotas participativas(non-voting shares)possible, but only usedby one Caja so far 9 .Source: Own elaboration. Afi, Analistas Financieros Internacionales.9 The new law approved by the Spanish government in July 2010, when this report was inan advanced stage of finalisation, would facilitate the use of this instrument to recapitalisethe cajas.39
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 36 and 37: BOX 2. KENYA POST OFFICE SAVINGS BA
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
Page 88 and 89:
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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