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Decoupling in Social ventures: One step forward two step backwards? Commercial Microfinance Organizations
Unformatted Document Text:  Dorado 4.Governance of microfinance organizations Governance of microfinance refers to the mechanisms through which donors, equity investors, and other providers of funds ensure themselves that their funds will be used according to the intended purposes (Hartaska 2005: 1628, Shleifer and Vishny (1997). These mechanisms are supposed to assure that there are no agency problems (Jensen & Meckling, 1976 ). , i.e. managers do not act in contradictions with the wishes of owners. Therefore, these mechanisms are supposed to increase the alignment between external demands on the organization and international organizational practices. The four key governance mechanisms are ownership, board of directors, auditing and other requirements of information disclosure, and the market for corporate control ( Keasey, Thompson, & Write, 1997; Hartaska 2005 ). The form of these mechanisms is likely to vary depending on the type of financial institution. 4.1. Ownership From an ownership perspective, microfinance organizations can be meaningfully clustered into three categories. First, they are either NGOs, or commercial microfinance organizations whose majority owner is the NGO that founded them. The majority of organizations providing microfinance services worldwide are NGOs. A recent survey indicated that there are as many as 1,785 NGOs providing microfinance services and probably many more (Christen, Rosenberg, Jayadeva, 2004). The majority of these organizations were created with funds from donors – multilateral and bilateral agencies, private foundations and individuals – as grants or concessionary loans (Rock, Otero, Saltzman 1998). The first NGO commercial microfinance organization in the world was BancoSol. Prodem, its NGO retained 45 percent of the shares (see table 2). Compiling information from different sources I have calculated that there are as many as 46 NGO controlled commercial microfinance organizations (see appendix). There are also around 16 other commercial microfinance organizations which have been created by specialized microfinance organizations. In this organizations, microfinance specialized funds have an ownership control interest. In turn, these organizations are majority owned and control by multilateral development organizations and international NGOs. Second, there is a growing number of purely commercial financial institutions engaged in microfinance activities. These are either banks who have added a microfinance department or - 6 -

Authors: Dorado, Silvia.
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Dorado
4.Governance of microfinance organizations
Governance of microfinance refers to the mechanisms through which donors, equity
investors, and other providers of funds ensure themselves that their funds will be used according
to the intended purposes (Hartaska 2005: 1628,
Shleifer and Vishny (1997). These mechanisms
are supposed to assure that there are no agency problems (Jensen & Meckling, 1976
).
, i.e.
managers do not act in contradictions with the wishes of owners. Therefore, these mechanisms
are supposed to increase the alignment between external demands on the organization and
international organizational practices.
The four key governance mechanisms are ownership, board of directors, auditing and other
requirements of information disclosure, and the market for corporate control (
Keasey,
Thompson, & Write, 1997; Hartaska 2005
). The form of these mechanisms is likely to vary
depending on the type of financial institution.
4.1. Ownership
From an ownership perspective, microfinance organizations can be meaningfully clustered
into three categories. First, they are either NGOs, or commercial microfinance organizations
whose majority owner is the NGO that founded them. The majority of organizations providing
microfinance services worldwide are NGOs. A recent survey indicated that there are as many as
1,785 NGOs providing microfinance services and probably many more (Christen, Rosenberg,
Jayadeva, 2004). The majority of these organizations were created with funds from donors –
multilateral and bilateral agencies, private foundations and individuals – as grants or
concessionary loans (Rock, Otero, Saltzman 1998).
The first NGO commercial microfinance organization in the world was BancoSol. Prodem,
its NGO retained 45 percent of the shares (see table 2). Compiling information from different
sources I have calculated that there are as many as 46 NGO controlled commercial microfinance
organizations (see appendix). There are also around 16 other commercial microfinance
organizations which have been created by specialized microfinance organizations. In this
organizations, microfinance specialized funds have an ownership control interest. In turn, these
organizations are majority owned and control by multilateral development organizations and
international NGOs.
Second, there is a growing number of purely commercial financial institutions engaged in
microfinance activities. These are either banks who have added a microfinance department or
- 6 -


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