Overview of Corporate Governance Issues for Co-operatives - IFC

as informal sector organisations (ILO 2000). The same period also witnessed the hugegrowth in micro finance institutions linked to NGOs. The attention of policymakers,academics and donor agencies has been predominantly focused on NGO micro financeinstitutions.Fortunately this is now beginning to be evidenced by the ongoing research programmeinto CFIs mentioned previously and a smaller initiative to survey co-operative provisionof micro gap insurance commissioned by CGAP. This research is still very much in itsearly stages.However CGAP has recently produced a briefing note outlining the main governancechallenges facing credit unions in the developing world. They include a lack of adequateparticipation in decision-making structures by members. This can result in dominance ofthe co-operative by community elites who then use the funds to secure their ownposition. The case of a railway SACCO is cited where the directors facilitated privilegedloans to their own supporters. A second problem occurs when board members continueto exercise operational control even after professional managers have been appointed(CGAP 2005).The absence of clear and distinct roles for paid management and boards is also cited asa major problem in a separate paper for GCAP, ’Micro Insurance Series Good and BadPractice’, submitted by the International Cooperative and Mutual Insurance Federation.Worst practices among insurers have happened when there has been conflict orcollusion with management by boards. A further paper in the same series reviews theinsurance services provided by the Malawi Savings and Credit Co-operatives. Herethere is also an emphasis on effective training for members as well. Training sessionstypically cover issues such as what is a co-operative and the rights and responsibilitiesof members (ICMIF 2005).Co-operative development agencies and sectoral bodies such as the World Council ofCredit Unions (WOCCU) are working to improve governance standards among creditunions. A series of good practice guidelines and governance codes have beendeveloped and relevant training programmes developed and delivered (WOCCU 2006).They also promote the formation of national associations to advocate on behalf of theirmembers, influence policy and demand responsive governance from local and stateentities. WOCCU shares CGAP’s concern with the need to raise standards ofgovernance for boards:Good governance stems from clearly defined roles and responsibilities of theboard of directors, committees and senior managers. It also stems from codes ofconduct which directors and staff at every level of the institute sign on to andrespect in the completion of their tasks. Sound bylaws and policies seek to avoidconflicts of interest and provide mechanisms for dispute resolution where they doarise. While many factors contribute to the governance of an institution, goodgovernance begins and ends with the board(http://www.woccu.org/best_practices/index.php?sec_id_view=12)Page 30