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1
FUNDACIÓN MICROFINANZAS
UNIVERSAL CORPORATE
GOVERNANCE CODE
FOR MICROFINANCE
INSTITUTIONS
March 20111st Edition
UNIVERSAL CORPORATE
GOVERNANCE CODE
FOR MICROFINANCE
INSTITUTIONS
© Fundación Microfinanzas BBVA.
All rights reserved.
The content of this publication is property of the BBVA Microfinance Foundations. No part of this publication may be reproduced without prior written permission. The publication without authorization violates the Intelectual Property Law.
Fundación Microfinanzas BBVAPaseo de Recoletos, 10.- 28001 Madrid (España)
www.mfbbva.org email: [email protected] Tel.: +34 91 374 70 84
INTRODUCTION
6
INTRODUCTION
The BBVA Microfinance Foundation contributes to sustainable economic and social
development of disadvantaged people in society through productive microfinance. The
Foundation works to strengthen the microfinance sector in order to extend financial
products and services to more people, under better conditions. With this in mind, the
Foundation has several lines of work underway, including strengthening corporate
governance in the microfinance sector.
The lack of good corporate governance is one of the main challenges facing the sector
in Latin America and the Caribbean. Corporate governance is related to an institution's
internal operating and control procedures. It plays a key role in creating transparency and
trust for investors and in attracting capital. Good corporate governance contributes to
efficient management and to considering stakeholder interests, boosting the microfinance
institution's reputation and integrity and fostering customer trust.
The BBVA Microfinance Foundation has written two reference corporate governance
documents for the microfinance sector, which are available for any microfinance institution
interested in applying it:
• The "Universal Code of Corporate Governance for Microfinance Institutions", which
is included in this publication and contains a series of good practices, standards
and principles that, in accordance with generally-accepted international standards
and good practices, the BBVA Microfinance Foundation considers suitable for the
good governance of any microfinance institution and for the proper governance of
each institution, regardless of its legal structure (regulated or non-regulated financial
institution, NGO, cooperative, etc.).
• This Universal Code is supplemented by the “Guide to adopting good governance
principles in microfinance institutions”, written by the Foundation in collaboration
with the IDB/MIF. This Guide covers the essentials that microfinance institutions must
consider when preparing a corporate governance code and implementing it in their
Boards of Directors.
7
INDEx
8
INDEX
I. DEFINITION OF GOOD CORPORATE GOVERNANCE .......................................................................10
II. IMPORTANCE OF CORPORATE GOVERNANCE ...............................................................................11
III. CORPORATE GOVERNANCE PRINCIPLES ........................................................................................12
IV. GOOD GOVERNANCE IN ADMINISTRATION ...................................................................................14
1. ANNUAL GENERAL MEETING .......................................................................................................................14
1.1. CONVENING .............................................................................................................................................................14
1.2. RIGHT TO INFORMATION .......................................................................................................................................15
1.3. DELEGATION AND REPRESENTATION .................................................................................................................15
1.4. MEETING MINUTES ................................................................................................................................................15
2. BOARD OF DIRECTORS ..................................................................................................................................16
2.1. BOARD OF DIRECTORS DUTIES ............................................................................................................................16
2.2. SIZE OF THE BOARD OF DIRECTORS ..................................................................................................................17
2.3. BOARD OF DIRECTORS COMPOSITION ...............................................................................................................17
2.4. APPOINTMENT AND RE-ELECTION OF DIRECTORS .........................................................................................17
2.5. DURATION OF OFFICE .............................................................................................................................................18
2.6. END OF TERM OF OFFICE .......................................................................................................................................18
2.7. INCOMPATIBILITIES INHERENT TO THE POSITION ..........................................................................................19
2.8. DIRECTOR REMUNERATION ..................................................................................................................................19
2.9. DIRECTOR RESPONSIBILITY ..................................................................................................................................20
2.10. DIRECTOR EVALUATION .......................................................................................................................................20
2.11. CONFLICTS OF INTEREST .....................................................................................................................................20
2.12. BOARD OF DIRECTORS OPERATIONAL METHOD ...........................................................................................21
2.12.1. DISTRIBUTION OF POSITIONS ....................................................................................................................21
2.12.2. RULES OF OPERATION .................................................................................................................................22
9
V. GOOD GOVERNANCE IN MANAGEMENT .......................................................................................25
1. GENERAL MANAGER / EXECUTIVE CHAIRMAN / COO ............................................................................25
1.1. GENERAL MANAGEMENT'S DUTIES AND RESPONSIBILITIES ...................................................................25
1.2. GENERAL MANAGEMENT REMUNERATION ...................................................................................................26
1.3. GENERAL MANAGER SUCCESSION PLANNING ............................................................................................26
VI. BOARD OF DIRECTORS COMMITTEES .............................................................................................27
1. AUDIT COMMITTEE ........................................................................................................................................27
2. INVESTMENTS AND RISKS COMMITTEE ...................................................................................................28
3. APPOINTMENTS AND REMUNERATION COMMITTEE ............................................................................28
4. CORPORATE GOVERNANCE COMMITTEE .................................................................................................28
5. SPECIAL COMMITTEES ..................................................................................................................................29
VII. GENERAL ACTING PRINCIPLES ........................................................................................................30
1. PROCESS STREAMLINING ............................................................................................................................30
2. CONTRACT TRANSPARENCY ........................................................................................................................30
3. INTERNAL AND EXTERNAL CONTROL ........................................................................................................30
4. RISK CONTROL.................................................................................................................................................31
5. FINANCIAL PROFITABILITY AND SELF-SUSTAINABILITY .......................................................................31
6. MEASURING PERFORMANCE AND IMPACT .............................................................................................31
10
I. DEFINITION OF GOOD CORPORATE GOVERNANCE
Good Corporate Governance refers to a system of people, values, criteria, processes and
procedures that ensure that an organization is managed properly and that guides it towards
its mission and vision.
The general duties of the Corporate Governance system are:
1. Defending the organization's mission, vision and fundamental goals.
2. Moving the organization along its main strategic guidelines.
3. Maintaining the organization's long-term sustainability.
4. Ensuring that corporate responsibility is applied throughout the organization.
Good Corporate Governance makes sure mechanisms are in place and put into practice
in order to strike a balance between management and control and to meet the needs of
stakeholders (everyone involved in the organization and/or affected by its activity).
The challenges involved in implementing Corporate Governance include:
1. Identifying the path to follow and the solutions that best meet the organization's needs.
2. Hiring people who can guarantee efficient management and administration.
3. Conveying that credibility in the eyes of the market is a fundamental pillar.
4. Commitment to stakeholders (shareholders or partners, customers, suppliers,
institutions and markets, and so on).
11
II. IMPORTANCE OF CORPORATE GOVERNANCE
When an organization has high Corporate Governance standards, it is seen to be more
trustworthy and therefore has access to better financing conditions and better conditions
on the capital markets in which it trades.
Better Corporate Governance means that the organization is better organized, plans its goals
and strategies better and fulfils its processes more efficiently. It consequently becomes
stronger and more competitive.
The advantages of Good Corporate Governance include:
1. It creates value.
2. It ensures efficient company management and administration.
3. It protects the rights of investors and other stakeholders, which in turn builds market
trust and sustains the organization over time.
4. It attracts capital.
5. It allows access to financing sources.
12
III. CORPORATE GOVERNANCE PRINCIPLES
• FAIRNESS
Protection of shareholder rights, in the case of organizations with a corporate status, guaranteeing fair treatment for everyone and with special protection of minority shareholder rights and encouraging the exercise of their right to company information and voting rights.
In the case of organizations with a different legal status, like NGOs, cooperatives, etc., the guarantee that decision-making at the governance levels is fair, limiting abuse of power by a minority group or excessive concentration of power in one of the members.
• RESPONSIBILITY
Establishing a framework of responsibility for administrators (or governance body members) and senior executives (or the organization's managers) aimed at creating long-term, sustainable value for shareholders and other stakeholders (customers, suppliers, international finance and development bodies, etc.). The aim is the company's long-term survival on the basis of sustainability, keeping integrity and boosting its financial and intellectual capital (human, structural, relational and social).
• RESPECT FOR RIGHTS
Respect for people’s dignity and their inherent rights. The organization must be committed to the United Nations Universal Declaration of Human Rights and to other international organization treaties that promote human rights, in particular the International Labor Organization.
An important aspect of these rights and a demonstration of this dignity is equal opportunities and respect for diversity.
• CORPORATE INTEGRITY
Promoting honorable and impeccable behavior, based on the belief that without integrity customer, stakeholder and company trust is impossible.
As part of personal integrity, the organization’s employees must show outstanding dedication and a professional attitude in both processes and result management, in order to ensure an excellent reputation.
• LOYALTY
Acting in good faith in the organization's general interests, honestly and rigorously, knowing that a consistent example set by all of the organization's employees is of fundamental importance.
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FUNDACIÓN MICROFINANZAS
The organization must hire responsible people who try to find the best answer to situations, proposing solutions and assuming the risk of being wrong. This way they learn to take the right decisions.
• COMPLIANCE WITH REGULATIONS
Compliance with legal provisions and regulations that apply to the organization.
In accordance with the applicable legal framework, cooperation with supervisory, judicial and administrative authorities to prevent unlawful activities and conflicts of interest.
• TRANSPARENCY
Attaching particular importance to policies that allow stakeholders their access to significant information, guaranteeing that this information is reliable and available, based on transparency and external, independent verification.
This means issuing and disclosing information responsibly and accurately, promoting transparency, fluidity, confidentiality and integrity in the markets where it operates.
The organization must also establish procedures and rules to ensure that legal requirements regarding the safekeeping of documents and records are fulfilled.
14
IV. GOOD GOVERNANCE IN ADMINISTRATION
1. ANNUAL GENERAL MEETING
This is the institution's highest governing body. Regardless of its name, it varies according to the organization's legal status and/or the country's legislation. If the organization is a company, association or cooperative, it refers to the Meeting of Shareholders (or members) as the supreme corporate body formed by the shareholders/members.
Good governance requires participation from the maximum number of shareholders/members in the Meeting decisions, in order to benefit the institutions. The shareholders/members therefore need to be given the opportunity to exercise their vote and communicate with each other.
The key question is checking whether the shareholders/members and other participants are able to fully exercise their rights. All shareholders must have the same rights, including the right to vote.
The organization must establish internal regulations that set the criteria for organizing and running the Annual General Meeting in order to allow the shareholders/members to exercise their rights.
1.1. CONVENING
The Chairman of the Board of Directors convenes the Annual General Meeting in accordance with the agenda.
The Board of Directors can convene the Annual General Meeting (AGM) whenever it deems necessary on behalf of the institution's interests. The Board is under the obligation of convening the Annual General Meeting at least once every fiscal year and when requested by a representative number of shareholders/members.
The convened Annual General Meeting will assemble to:
- Review and approve corporate management .
- Review and approve, if applicable, the financial statement from the previous year.
- Decide on how to allocate profit.
- Adopt resolutions on any other matter as long as it is included on the agenda and the share capital required by the law or in the organization bylaws is represented at the Meeting.
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FUNDACIÓN MICROFINANZAS
Any announcements of the meeting must contain every detail required by law and must always specify the venue, day and time of the first scheduled meeting, as well as all of the matters that will be discussed (the agenda).
1.2. RIGHT TO INFORMATION
Once the AGM has been announced, the institution will provide shareholders/members
with documents and other information related to the matters that will be discussed at the
Meeting.
Before the AGM is held, shareholders can ask the Board of Directors for any information
or clarifications they consider necessary regarding the items on the agenda, and they
can ask any questions they consider relevant.
1.3. DELEGATION AND REPRESENTATION
Any shareholders can be represented by another person at the AGM, even if they
are not a shareholder. The representative powers must be conferred specifically for
each meeting, which can always be revoked should the represented person attend
the meeting in person. In the case of associations and cooperatives, members can
delegate their vote in accordance with the institution's articles of association.
The document that sets out the delegated or representative powers for the Annual
General Meeting will include instructions on where the vote heads to and the agenda.
1.4. MEETING MINUTES
The deliberations and resolutions at the Meeting will be recorded in a Minute, which
must include at least the following: the meeting venue, date and time; the notification
method and notice period; the list of attendees; the matters discussed (agenda);
decisions taken and number of votes in favor, against or blank votes; written material
submitted by attendees during the meeting; appointments made, and the date and time
the meeting was closed.
The minutes therefore reflect everything discussed and approved at the Annual General
Meeting and are thus important because they are an excellent proof of the resolutions
adopted and shareholders/ members participation.
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Universal Corporate Governance Code for Microfinance Institution
2. BOARD OF DIRECTORS
It is the body responsible for administering the organization with all of the necessary powers.
Good governance therefore places an emphasis on the importance of the Board of Directors
as a governing body which channels the structure and operation of the organization’s
corporate bodies in its interests.
2.1. BOARD OF DIRECTORS DUTIES
The Board of Directors, which is subject to the AGM guidelines and policies, is the body
responsible for representing, administering, managing and supervising the institution
and assumes the broadest powers in all of those areas.
It is therefore generally responsible for:
- Helping define the strategy that will increase the institution’s value, guiding the
management by assimilating information that affects the organization’s performance
and creating a planning document and annual budget for the following year.
- Evaluating Management’s performance based on:
(i) Creating policies that are in the institution’s best long-term interests.
(ii) Ensuring that the management team has all of the necessary resources
to implement the institution’s policies.
(iii) Monitoring the results of the institution’s policies.
- Defining how the Board of Directors method of operation, i.e. the members, their selection,
evaluation and changeovers or rotation, in order to guarantee a strong structure.
- Formulating and disclosing the remuneration policy with an emphasis on how this
policy is related to the performance of key executive bodies and their members.
- Ensuring compliance with laws and regulations, and supervising internal control
systems related to financial reports.
- Establishing the Code of Ethics and Conduct.
- Establishing the mechanisms that regulate possible conflicts of interest.
In all of its duties and in accordance to the Code objectives, the Board of Directors
will promote excellent treatment and customers service, partners, suppliers and other
stakeholders.
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FUNDACIÓN MICROFINANZAS
2.2. SIZE OF THE BOARD OF DIRECTORS
The size of the Board of Directors in accordance to with the size of the institution and must foster participation of all of its members.
The Board of Directors must be of a size that ensures proper representation, efficiency and participation.
The Annual General Meeting is responsible for determining the exact number of Board
members, subject to legal regulations in each country and to the institution’s bylaws.
2.3. BOARD OF DIRECTORS COMPOSITION
It will be formed by internal and external Directors, who can be independent or not. The total number of independent Directors should represent at least one third of the total number of Board members.
The Board of Directors structure must be balanced in terms of member experience, qualifications and independence so as to undertake the different tasks and inherent responsibilities.
Experience and qualifications refer to a balanced Board of Directors structure in terms of financial matters, risks and corporate goals.
Also, to be a member of the Board of Directors a person must not be involved in an legal procedure on the grounds of prohibition or incompatibility.
All the Board members will have the right to speak and vote. If the manager sits on the Board of Directors, he will have the right to speak but not to vote to ensure that the
administration and management functions are separated.
2.4. APPOINTMENT AND RE-ELECTION OF DIRECTORS
The appointment and re-election of the Board of Directors members falls on the Annual
General Meeting or the organization’s highest governing body.
Once chosen, the Board members must represent the institution’s interests. They must
perform their duties in good faith, objectively and independently, with due care and
diligence, so that their decisions are always aimed at the institution’s best interests. All
of the Meeting members must be aware of and ratify the institution’s internal regulations,
Code of Ethics and Conduct and Code of Corporate Governance.
The Board of Directors must ensure that the people put forward for the position of Director
have the necessary solvency, competence and experience and are willing to put in the
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Universal Corporate Governance Code for Microfinance Institution
necessary time and effort to carry out their duties, taking special care in relation to the
choice of people proposed for the position of independent Director.
The resolutions that the Board of Directors adopts in relation to the re-election of members
and its deliberations in this regard shall take place in the absence of the Director whose
re-election is proposed. If the Director is at the meeting, he must leave the room.
Where established in the country’s legal regulations, the appointment of the Board of
Directors members will also be subject to approval from the regulatory or supervisory body.
2.5. DURATION OF OFFICE
Directors shall remain in office for the term defined by the Annual General Meeting. If they have been co-opted, they shall work out the term of office remaining to the director whose vacancy they have covered through co-option, unless the AGM establishes a longer term on ratifying the appointment agreed by the Board of Directors.
Board of Directors members will remain in office until their successors are chosen, unless their powers are revoked or they are disqualified beforehand. In any case, the organization’s articles of association must determine the period of effective member renewal, which must not exceed 5 years. Effective renewal means that at least one new member must join the Board of Directors in the aforementioned period.
2.6. END OF TERM OF OFFICE
Directors shall resign from their office when the term for which they were appointed has expired, are re-elected, or when the Annual General Meeting decides so.
The Board of Directors has the power to revoke a member at any time, even if their term of office has not expired.
Causes for the end of term of office for members include: death, resignation from office, maximum established age, physical or legal incapacity to carry out the assigned duties or being revoked from their position (if the reason they were appointed as member of the Board of Directors because of that specific position).
The Board members must hand in their notice to the Board of Directors, which will
arrange their resignation if it deems necessary, in the following cases:
a. When barred (on grounds of incompatibility or other) under prevailing legal
regulations.
b. When significant changes occur in their professional situation or the condition by virtue of which they were appointed to the Board.
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FUNDACIÓN MICROFINANZAS
c. When they are in serious infrigement of their duties as directors.
d. When they have failed to comply with: the organization bylaws, the Code or Corporate Governance, the Code of Ethics and Conduct and the internal regulations. When the Director, acting as such, has caused severe damage to the Company’s assets or its reputation or credit, and/or no longer displays the commercial and professional honor required to hold a directorship.
e. If remaining on the Board of Directors might affect the Board or the institution’s credit or reputation, or it might harm its interests (e.g. in a conflict of interests or breach of legislation).
f. In the case of a non-independent member when the shareholder whose interests he represents on the Board of Directors is involved in the institution.
When a Board member ceases to occupy his position before his term of office ends, through resignation or any other cause, he must explain the reasons in a letter to all of the members, and, regardless of whether this end of term of office is reported as a significant event, the reason should be included in the Annual Corporate Governance Report.
2.7. INCOMPATIBILITIES INHERENT TO THE POSITION
Board of Directors members cannot work for the competitors of the institution in which they have ceased to be a Director, nor can they accept employee, manager or administrator positions in those companies, unless the Board of Directors grants express authorization or they were providing those services before they joined the Board of Directors and informed the Board about said situation at the time.
Members who leave the Board of Directors can work for any other institution, except competitors of the institution in question or its subsidiaries. In this case, the member must request express authorization from the Board of Directors, which may refuse this request in the institution’s interests. If the request is refused, the member cannot be appointed to a similar position or work for another competitor of the institution or its subsidiaries for
two years after he has left the Board of Directors.
2.8. DIRECTOR REMUNERATION
The Annual General Meeting must establish the remuneration policy for the Directors,
taking the necessary measures in order to maintain, correct or improve it and to adapt
this policy to the principles of moderation and the institution’s performance.
The remuneration that the Board members receive must be transparent. The Board of Directors must include information on the total and global amount that the Board members receive in the annual information and in the Annual Corporate Governance Report.
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Universal Corporate Governance Code for Microfinance Institution
As a general rule, for the smooth running of the institution, the Board of Directors members must receive sufficient remuneration, in order to establish a tie that binds competent people, and this remuneration must one way or another be consistent with the Directors outcomes and the institution performance.
2.9. DIRECTOR RESPONSIBILITY
Directors will respond the institution, shareholders and creditors for any damages that they cause due to unlawful actions or omissions or due to a breach of their inherent duties, in accordance with legally established terms and conditions.
2.10. DIRECTOR EVALUATION
The Board of Directors must evaluate annually each member’s performance in accordance with objective criteria that the institution’s Board of Directors establishes.
2.11. CONFLICTS OF INTEREST
A conflict of interest is any situation or event related to institutional regulation, administration, operation or control in which a Board of Directors member must intervene or participate as part of his duties and whose decision is directly or indirectly related to his own personal or family interests and/or that institutional decision goes against the institution’s interests.
Directors must avoid falling into the following conflicts (including but not limited to):
• Acting based on friendship or family relationship.
• Carrying out any activity that could generate or seem to generate personal favors in return.
• Receiving remuneration, gifts or any other type of monetary compensation or compensation in kind from any individual or legal entity for work or services rendered to the institution.
• Using their position or the institution’s name for personal gains.
• Generally speaking, any activity carried out in better conditions than market conditions for the respective Board member.
Board members must inform the Board of Directors, or whichever committee is responsible, as soon as possible of any direct or indirect conflict that could go against the institution’s interests, providing the necessary information so that an unbiased and informed decision can be taken.
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FUNDACIÓN MICROFINANZAS
Directors must abstain from intervening in votes relating to matters in which they or people related to them have a direct or indirect interest.
In any situation in which there is doubt over a possible conflict of interest, the Board member must proceed as though this conflict of interest did exist. If the majority of members are in a potential conflict of interest situation, the Board must abstain from carrying the activity, or from holding the event or entering the agreement or contract that generates this situation, unless the Board Chairman gives express authorization.
The following people are considered to be related to Board of Directors members:
a. The spouse of the Board of Directors member in question or anyone with a similar relationship.
b. The parents, grandparents, children and siblings of the member or his spouse.
c. The spouses of the member’s parents, grandparents, children and siblings.
Any Board of Directors member who infringes upon these provisions will be responsible for any damages and loss caused to the institution and may be revoked by the Board of Director or by the Annual General Meeting.
2.12. BOARD OF DIRECTORS OPERATIONAL METHOD
2.12.1. DISTRIBUTION OF JOB POSITIONS
Chairman
The Board of Directors will appoint a Chairman from its members, who will chair the Board and who will also be Chairman of the institution. The Board will delegate the Chairman all of the powers inherent to his position in order to efficiently manage the institution.
The Chairman is given ordinary powers to convene the Board of Directors, prepare the agenda for its meetings and lead discussions. The Chairman must nonetheless convene the Board of Directors and include any items on the agenda when requested by a representative number of Board members.
If the Chairman is unable to carry out his duties or is absent, the Deputy Chairman -if there is one- or the oldest Board member will stand in for him.
Deputy chairman
The Board of Directors can appoint a Deputy Chairman from its members, who will
hold the Deputy Chairman’s Office for the Board.
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Universal Corporate Governance Code for Microfinance Institution
The Deputy Chairman’s only duty is to stand in for the Chairman in his absence or
unable to fulfill his duties.
Secretary
The Secretary of the Board of Directors may or may not be a Board member. The
Board will take this decision. If not a member, the Secretary will have the right to
speak but not to vote at the meetings.
The Board will appoint the Secretary and terminate his term of office, selecting a
competent person with proven integrity and identity for the institution. Given the
importance of his duties (he enforces legal, statutory and regulatory requirements),
the Secretary should be independent and have stability in his post.
The Secretary must help the Chairman with his duties. In addition to the special duties
assigned by the Board of Directors, the Secretary will be Secretary for the Annual
General Meeting and a permanent collaborator for General Management.
2.12.2. RULES OF OPERATION
The Board of Directors will hold an AGM at least once a year and, at the Chairman’s
initiative, as often as he deems necessary for the smooth running of the institution, or
at the request of a majority of members, as must be established in the bylaws.
At least once of year, the Board of Directors must hold a special meeting to evaluate
its own work as a decision-making body, the consistency of its internal rules and its
members’ dedication and performance. It must propose any changes that it considers
necessary for its organization and operation.
The Board of Directors will prepare an annual plan of AGM sessions, specifying the
dates of the planned meetings and the items on the agenda.
Convening and agenda
The Board of Directors will be convened by the Chairman and, in his absence, by the
Deputy Chairman standing in for him, or by the General Manager.
The meeting will be considered to be convened on the dates specified in the
calendar of sessions established for the year, regardless of whether the Secretary,
on the Chairman’s instructions, sends notice to the members sufficiently in advance
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FUNDACIÓN MICROFINANZAS
of the sessions specified in the Agenda, which can be sent by letter, fax, telegram,
email, or any other online channels. The same means of notice should be used to
cancel the meeting.
The Board of Directors will be validly constituted when all its members are present
and unanimously resolve to constitute a meeting.
The announcement will enclose the session Agenda, although other items can
be included on it if the Board Chairman considers it necessary in the institution’s
interests. He can also decide that an item be removed from the agenda even after the
meeting has been convened.
The Chairman will take the necessary measures to ensure that the Directors receive
enough information prior to the meeting so that they can take well-reasoned and
justified decisions.
Session development
The Board of Directors will be validly constituted when half plus one of the members
attend the meeting, in person or represented.
The Board members can appoint another Board member to represent them, without
any limitations. However, the Board members are encouraged to attend the meeting
in order to enrich the discussions.
Representative powers must be conferred by letter, fax, telegram or email addressed
to the Chairman and specifically for each session, which can be channeled through
the Board Secretary.
The Board of Directors meetings will be held on the specified date and venue, in
accordance with the Agenda that the Chairman has established. The Chairman will
prepare the proposals that will be submitted to the Board’s approval and will lead the
deliberations and discussions.
The institution’s executives and other people may join the meetings should the Chairman
ask for their adequate attendance in light of the specific matters laid before the Board.
The Chairman will encourage the participation of all of the Board’s members in the
deliberations and discussions and will put matters to the vote when he considers they
have been sufficiently debated.
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Universal Corporate Governance Code for Microfinance Institution
The resolutions will be adopted by absolute majority of votes, either present or
represented, unless established otherwise in applicable law/bylaws/shareholder
agreements.
25
V. GOOD GOVERNANCE IN MANAGEMENT
1. GENERAL MANAGER / EXECUTIVE CHAIRMAN / COO
This Code advocates a full separation between administration and management duties so
that each body carries out its duties with the highest efficiency. The Board of Directors
members are responsible for the general strategy, control and supervision and must not
interfere in the General Management’s activities, to which the Board of Directors must
delegate the institution’s management duties.
However, the separation between management and governance duties and administration
duties must never result in important decisions or measures being taken by the institution’s
management bodies without the Board of Director’s intervention.
The General Manager is the institution’s legal representative, judicially and extra-judicially.
He is appointed by the Board of Directors and he reports to the Board Chairman.
The General Manager is responsible for putting in place procedures to implement the Board
of Directors’ policies, strategies and systems, including those relating to internal control
systems.
The General Manager will not be a member of the Board of Directors, although he will
actively participate in the sessions, with the right to speak but not vote, in order to give his
input on the items on the agenda or any other matter requested of him, with the exception of
sessions that discuss his own management activities.
The General Manager can be relieved of his duties at any time by the Board of Directors
without needing the reasons for the end of term of office of Board members.
1.1. GENERAL MANAGEMENT’S DUTIES AND RESPONSIBILITIES
There must be a proper balance between the Board of Directors’ and the General
Management’s duties, each exercising their powers and duties within the respective
area of competence of both bodies.
The General Manager will have the duties established by law and in the institution’s
bylaws and will fulfill the duties that are delegated to him by the AGM or the Chairman, as
well as those inherent to his position.
The provisions of the present Code of Governance will apply regarding conflicts of
interest that are inherent to the position of Board of Directors member.
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Universal Corporate Governance Code for Microfinance Institution
The provisions of the present Code of Governance will apply regarding incompatibilities
that are inherent to the position of Board of Directors member.
1.2. GENERAL MANAGEMENT REMUNERATION
The Board of Directors will establish the General Manager’s remuneration in accordance
with market conditions for this type of position, bearing in mind his professional and
personal conditions, the institution’s image and his experience. The General Manager’s
remuneration and financial benefits must be included in writing in his employment
contract.
A reasonable part of the General Manager’s remuneration can be variable, depending on
the institution’s management results, although the maximum limit at each time and the
remuneration conditions must be specified in detail.
1.3. GENERAL MANAGER SUCCESSION PLANNING
The Management’s succession planning is the responsibility of the Board of Directors,
which must ensure that the institution is well prepared for the next Management
generation.
As part of the succession plan, the Board of Directors must select potential candidates.
The plan must consider every different scenario possible, such as the General
Manager’s retirement at a suitable age, the General Manager’s decision to resign from
his post with sufficient notice, medical emergencies (illness or temporary absence) or
sudden death.
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VI. BOARD OF DIRECTORS COMMITTEES
The Board of Directors can set up the committees it deems necessary to help it perform its
duties better and assist it in matters that fall under their specific area of competence. These
committees must be set up and adapted in accordance with needs. The Board of Directors
can delegate the decision-making on specific matters to them.
The Board of Directors will establish the number of Committees, their name and their
responsibilities, and can also appoint or remove their members from office and appoint or
remove their respective chairmen from office.
The Board of Directors’ Internal Procedures Regulation must include the procedure and
method for convening meetings, legal quorum, method of adopting resolutions, minimum
frequency of meetings and other committee operating procedures.
1. AUDIT COMMITTEE
The Audit Committee members will be appointed by the Board of Directors, bearing in
mind the Directors’ knowledge, experience and skills, especially in relation to accounting,
auditing and risk management.
The Audit Committee makes recommendations to the Board of Directors regarding the
appointment of external auditors and their remuneration, as well as the approval of annual
financial statements and periodical statements. It also discusses the audit program and
results with Auditors and ensures fulfillment with internal controls, accounting policies
and financial information.
The Audit Committee is responsible for ensuring that internal and external audit activities
are carried out properly and that audit matters are given sufficient importance at the
Board of Directors meetings.
The Audit Committee will meet at least once a year, and whenever the Chairman deems
necessary or at the request of a majority of members.
The institution’s external auditors can attend the Audit Committee’s meetings whenever
their attendance is considered necessary in accordance with the nature of the items on
the agenda.
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Universal Corporate Governance Code for Microfinance Institution
2. INVESTMENTS AND RISKS COMMITTEE
The Investments and Risks Committee is responsible for analyzing matters relating to the
institution’s risk control and management strategy and policy, and assessing and approving
risk operations that could be significant.
The Investments and Risks Committee has powers over controlling financial risks generated
by the business units. It must approve the methods and models to identify, measure, monitor,
control, report and reveal different risk types. Its other duties include: reporting regularly
to the Board of Directors on risk exposure and the measures taken to manage it; adjusting
or authorizing overruns on exposure limits for the different risk types; and adopting,
implementing and disseminating contingency plans in the event of acts of nature or force
majeure to avoid breach of the set risk exposure limits.
The members of this committee must have the necessary skills and experience to carry
out their duties, and the Chairman must be specifically qualified in the risk management of
financial institutions.
This Committee will meet at least twice a year, and whenever the Chairman deems necessary
or at the request of a majority of members.
3. APPOINTMENTS AND REMUNERATION COMMITTEE
The Board of Directors sets up this committee to coordinate the appointments and
remuneration policy to be applied to the Board of Directors members.
The Appointments and Remuneration Committee is responsible for attending the Board of
Directors meetings in order to appoint, re-elect, remove from office and remunerate the Board
members and the institution’s senior management, authorize and report on transactions with
related parties and enforce the institution’s governance rules, regularly checking that its
rules, recommendations and principles have been fulfilled.
The Appointments and Remuneration Committee will meet at least once a year and whenever
the institution’s Board of Directors or Chairman requests that a report be issued or proposals
be approved within their area of competence, and whenever the Committee Chairman deems
necessary to facilitate the committee in its duties.
4. CORPORATE GOVERNANCE COMMITTEE
The Corporate Governance Committee’s duties include supervising the proper application
of good governance principles proposed in this Code and to which the institution is subject.
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These duties are exercised notwithstanding the legal and statutory powers of the institution’s
representative and management bodies.
This Committee enforces the good governance principles established at each time and
proposes any necessary measures to improve and update those principles.
This Committee will meet at least once a year and whenever the institution’s Board of
Directors or Chairman requests that a report be issued or proposals be approved within
their area of competence.
5. SPECIAL COMMITTEES
This type of Committee responds to the institution’s specific needs or one-off needs, fulfill-
ing a specific duty at a given moment in time, without the Committee or its duties being
required by the institution permanently.
They will be set up for the purpose, at the time and for the duration that the Board of Direc-
tors deems necessary.
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VII. GENERAL ACTING PRINCIPLES
These are a series of basic criteria for institutions aimed at improving their performance. They
are simple, flexible, generic and feasible criteria.
The following list includes but is not limited to the aforementioned criteria, selecting those
considered most relevant in terms of providing flexibility to the institution’s processes and
guiding them in their activities.
1. PROCESS STREAMLINING
In microfinance institutions, customers’ urgent financial needs often need to be solved.
The emphasis must be placed on short timeframes and meeting those deadlines, because
they are key elements in the quality of the service. Well-defined procedures need to be
established to assess the customer’s request and accept or deny it. The level of requirement
in the procedures should be stepped up as the amount involved in the transaction increases.
Institutions should have a credit manual that explains those procedures, which must be
focused on the two-fold aim of mitigating transaction risks and streamlining product approval
and payment times.
2. CONTRACT TRANSPARENCY
Product contract conditions must be explained to customers as clearly as possible. This
includes informing them in simple but rigorous terms about all of the aspects of the contract
and their implications regarding the customer’s relationship with the institution: product cost
or remuneration type, expiry period and repayment conditions, terms and amount of possible
penalties in the event of breach of contract, etc.
The product or service cost must be explained in rigorous and exact terms to the customer,
although complicated explanations and technical terms that hinder comprehension must be
avoided.
Financial contracts must be worded carefully to ensure transparency. Unfair clauses and
conditions or those establishing random payments and/or unilateral decision-making powers
and interpretation must not be included.
3. INTERNAL AND ExTERNAL CONTROL
Institutions must establish internal and external control mechanisms to guarantee in-depth
knowledge of the institution’s activities and strict and timely compliance with domestic
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legislation and regulations and good practices established by domestic and international
bodies involved in the microfinance sector.
A general, suitable and flexible reporting system must be put in place for all potential users:
the institution’s customers, shareholders, employees and executives. Mechanisms and
procedures must be established to ensure maximum efficiency for this reporting system.
Finally, institutions must comply with and enforce the legal regulations in the country in
which they operate.
The prevention of fraud, corruption and use of an institution’s services and structures for
unlawful activities must be focal points and areas in which institutions must guarantee
measures and procedures to detect, prevent and eliminate them immediately.
4. RISK CONTROL
Risk control is a core aspect in general financial activity, and in microfinance activity.
Microfinance sometimes involves a higher potential risk level that classic financial activity.
Management is responsible for directly supervising the organization’s liquidity, solvency
and performance. It is not so much a question of eliminating risks as being aware of them
and managing them as efficiently as possible, preventing problems that could affect the
institution and anticipating the best solutions available.
5. FINANCIAL PROFITABILITY AND SELF-SUSTAINABILITY
Institutions must design microfinance activity in order to achieve financial self-
sustainability in the shortest time possible, without overlooking the corporate purpose.
Financial sustainability must be focused on increasing the customer database and
expanding financial inclusion.
6. MEASURING PERFORMANCE AND IMPACT
Institutions must establish objective indicators to rigorously measure and assess economic
performance and social impact on the area and population that they cover.
There are current a number of indicators to determine an institution’s economic performance,
measured in terms of efficiency, profitability, balance sheet management and portfolio quality.
Institutions must attach particular importance to measuring social impact in order to guide
and assess fulfillment of their, mainly social, goals. Institutions must therefore propose and
use any indicators that provide information on this aspect of their activity.
Universal Corporate Governance Code for Microfinance Institution
The Universal Corporate Governance Code for Microfinance Institution contains a series of good practices, standards and principles that, in accordance with accepted international standards and good practices, the BBVA Microfinance Foundation considers suitable for the good governance of any microfinance institution and for the proper governance of each institution, regardless of its legal structure (regulated or non-regulated financial institution, NGO, cooperative, etc.).
The Universal Code is a reference document for the microfinance sector which explains the essential content for any MFI corporate governance code. This document is supplemented by the Guide for the adoption of good governance principles in microfinance institutions, written by the Foundation in conjunction with the IDB/MIF. This Guide covers the essentials that microfinance institutions must consider when preparing a corporate governance code and implementing it in their Boards of Directors.