Governance and Ownership Structure of Microfinance Institutions in Ethiopia

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  • Governance and Ownership Structure of Microfinance Institutions in Ethiopia

Microfinance in Ethiopia is an infant industry, which is currently operated by 21 institutions. The ownership structure of the MFIs is a
mixture of local NGOs, public organizations, associations, and individuals. Based on the requirements of Proclamation No. 40/96 issued
to regulate the business of microfinance in the country, the existing MFIs have been registered as share companies. These MFIs are, therefore, governed by a board of directors who are elected by their respective general assemblies. The majority of the MFIs have governance problems emanating from their ownership structure. The basic objective of this study, therefore, is to establish and recommend best practices for diversified ownership and good governance in MFIs. The sample for the study is made up of ten microfinance institutions, which is about 50% of the MFIs in operation. Efforts were made to diversify the sample selected in the ownership structure, years of service and areas of operation. The study tries to briefly review international experience in the
incorporation of MFIs, including the form of organization and ownership structure. A review of the legal and regulatory framework including corporate law in Ethiopia has also been made to examine whether the provisions could be easily applicable to the incorporation of MFIs in Ethiopia, in the light of the objectives for which these MFIs are established. The major policies, mechanisms of service delivery, and activities of the MFIs selected for the study were reviewed in detail. In addition, some future challenges that may arise as a result of the existing ownership and governance structure were identified, and based on the short and long-term actions to be taken by different stakeholders are recommended

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