The current economic climate in Nigeria has necessitated the need for a strong and effective corporate governance regime for various sectors across board, particularly the banking sector. The role of Microfinance banking in the Nigerian economy stands as an integral part of the economy as it provides financial services to essentially small businesses. Therefore, the cost and consequences associated with poor corporate governance for micro finance banks in operation within the country cannot be over emphasized.
This write up looks into the effect of corporate governance in improving the performance of micro finance banks and determines the extent to which Corporate governance can facilitate the organization in achieving their desired goals and objectives. This is to ensure that corporate governance practices can bring stability to Micro finance banks, strengthen their institutions, promote investment and weaken corruption.
THE NEED FOR EFFECTIVE CORPORATE GOVERNANCE
Over the years, the idea of Corporate Governance has drawn the attention of the general public based on its importance to economic growth and development. Corporate Governance being the heart of how businesses are run can be viewed as the way and manner in which a company is directed and controlled. It is primarily concerned with the decision making process, procedures and attitudes that assist the company in achieving its objectives. The underlying principles of corporate governance are good governance, accountability and transparency which ensure optimal performance.
Micro finance banks can be seen as key drivers of economic growth for the reason that they help create a thriving economy and breach the gap of financial exclusion of the active poor thereby creating job opportunities and increasing the standard of living of the people. The need for corporate governance therefore becomes essential as a result of the challenges faced by micro finance banks such as poor capital base, insider abuse, inadequate business opportunities and the changing government policies amongst others. These contribute immensely to the poor performance of Micro finance banks in the country.
Therefore for the survival and sustenance of small and medium enterprises, corporate governance ensures that adequate sustainability and function especially in an era when financial institutions are subjected to higher standards of integrity hinged on public trust and confidence.
The need to look more closely into effective monitoring for Micro Finance banks therefore becomes essential with regards to their stakeholders and the ethical value that guide businesses. Therefore having an effective corporate governance structure in Micro Finance banks such as keeping proper financial accounts, true and fair view of the annual statements of accounts, having effective internal control and board system amongst others is important because it will help form the foundation for growth and expansion.
HOW MICRO FINANCE BANKS CAN INTEGRATE EFFECTIVE CORPORATE GOVERNANCE INTO THEIR SYSTEM
The challenges experienced in the banking sector made the CBN in 2006 to release the code of Corporate Governance for banks in Nigeria established under the provision of the bank and other financial institution Act. The corporate governance guidelines amongst other issues addressed ensures that Micro Finance banks should have in place a structure for outlining the roles of board of directors with an appropriate succession plan to ensure a seamless transition of power. Also, there should be a transparent flow of information amongst all stakeholders.
Another key area of Corporate Governance in Micro Finance banks would be the maintenance of credible books of account to be audited annually by an External Auditor using a recognized International Financial Reporting standard. This relates to giving information that makes clear the position and profit performance of the organization and the way in which the information has been delivered and most importantly an effective internal control system that must be in place to enable it act as a check and balance mechanism to help reduce its exposure to risk within the organization.
In achieving the above, both the internal governance and external governance typology of Corporate Governance must work together for an effective regime to be put in place.
Corporate Governance for Micro Finance Banks therefore plays an important role in the development of the economy. No doubt, one of the many challenges faced by Micro finance banks amongst other will be to attract investments but adhering to proper governance rules and guidelines will help securing and attract this much desired investment to enable the sector remain vibrant. This makes Corporate Governance for Micro Finance Banks extremely relevant.
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