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Annex 57: Sample Board Manual


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We would like to acknowledge valuable contribution and suggestion by the Team Leader

Ms. Janis Sabetta, which greatly enriched this manual.

This Sample Manual is to be used as Guide to MFIs in developing their own Manuals. What is

contained in the Manual is not conclusive and each MFI should adapt what is relevant to their

Institutions situations. All Board Members should undergo training in the use of the manual and

their various roles and responsibilities especially financial management, credit risk management

and Governance of Microfinance Institutions.

Each Manual should be a living tool for the Board and the Chief Executive, and should be

frequently updated by the Board. Board Manual is aimed to assist the governing body to fulfill its

responsibility according to ambitious, achievable, and measurable governance performance

targets. It should also be clear, precise and easy to understand and interpret.

Each MFI should use this Sample Manual a guide only and while adapting it, incorporate their

respective policies, legal entity of the institution and Legal requirements if any. Board Members

should understand the legal Liabilities they face/will face as regulated MFIs (for those in the

process of Transformation).

The Board should be large enough to complete its works effectively, help secure funding as

needed, advance the reputation of the MFI, provide continuity and ensure that quorums are

easily met for meetings, yet small enough to allow substantive decisions to be made and for

Board Members to establish a relationship of trust and accountability with each other.1

1 . 2006.


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TABLE OF CONTENTS

1 INTRODUCTION ................................................................................................................................... 41.1 BACKGROUND INFORMATION OF THE INSTITUTION............................................................................. 4

1.2 MISSION AND VISION........................................................................................................................ 41.3 GOALS AND OBJECTIVES.................................................................................................................. 41.4 DECLARATION ................................................................................................................................. 41.5 PURPOSE OF THE MANUAL ............................................................................................................... 41.6 HOW THE MANUAL IS USED .............................................................................................................. 4

2 SHAREHOLDER STRUCTURE AND GOVERNANCE ....................................................................... 52.1 SHAREHOLDERS MEETING ............................................................................................................... 52.2 SHAREHOLDER LIST......................................................................................................................... 52.3 SHARE CERTIFICATES ...................................................................................................................... 52.4 SHAREHOLDERS MEETINGS/ANNUAL GENERAL MEETINGS................................................................ 52.5 SHARE TRANSFERS ......................................................................................................................... 5

2.6 DIVIDENDS ...................................................................................................................................... 62.7 RESERVES ...................................................................................................................................... 62.8 GOVERNANCE ................................................................................................................................. 6

3 BOARD STRUCTURE .......................................................................................................................... 63.1 OVERVIEW ...................................................................................................................................... 63.2 SIZE AND BOARD COMPOSITION ....................................................................................................... 63.3 MINIMUM ELIGIBILITY CRITERIA OF THE BOARD MEMBERS................................................................. 73.4 ROLES AND RESPONSIBILITIES OF THE BOARD.................................................................................. 73.5 BOARD CHAIR AND THE COMMITTEES ............................................................................................. 10

3.5.1 Board Chair ............................................................................................................................. 103.5.2 Board Secretary ...................................................................................................................... 113.5.3 Executive Committees ............................................................................................................ 123.5.4 Audit and Internal Control Committee ..................................................................................... 123.5.5 Credit and Risk Management Committee ............................................................................... 133.5.6 Asset Liability and Management Committee (ALCO) ............................................................. 143.5.7 Human Resource and Compensation Committee .................................................................. 153.5.8 Nomination Committee ............................................................................................................ 153.5.9 Ad Hoc Committees ................................................................................................................ 15

4 BOARD POLICIES AND PROCEDURES .......................................................................................... 154.1 APPOINTMENT/ELECTION OF BOARD MEMBERS............................................................................... 154.2 INFORMATION AND COMMUNICATION PROCEDURES......................................................................... 164.3 CODE OF ETHICS FOR BOARD MEMBERS........................................................................................ 164.4 CONFIDENTIALITY POLICY .............................................................................................................. 174.5 CONFLICT-OF INTEREST AND DISCLOSURE POLICY.......................................................................... 174.6 CREDIT POLICIES........................................................................................................................... 18

4.6.1 Lending Limits ......................................................................................................................... 184.6.2 Provisions ................................................................................................................................ 184.6.3 Write Off Policy ........................................................................................................................ 18

4.7 PERSONNEL POLICIES ................................................................................................................... 194.7.1 General .................................................................................................................................... 19


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4.7.2 Grievances .............................................................................................................................. 194.8 APPOINTMENT OF THE CEO ........................................................................................................... 204.9 EXPENSE REIMBURSEMENT POLICY................................................................................................ 204.10 PUBLIC RELATIONS POLICY............................................................................................................ 204.11 BOARD MEETINGS PROCEDURES ................................................................................................... 20

4.11.1 Regular Meetings ................................................................................................................ 204.11.2 Special Meetings ................................................................................................................. 214.11.3 Quorum ............................................................................................................................... 214.11.4 Consent in Lieu of Meeting ................................................................................................. 214.11.5 Telephone Conference ........................................................................................................ 21

4.12 COMPENSATION POLICY................................................................................................................. 214.13 REMOVAL POLICY .......................................................................................................................... 214.14 VACANCIES AT THE BOARD............................................................................................................. 22

4.14.1 Sudden Vacancies .............................................................................................................. 224.14.2 Resignations Effective at Future Date................................................................................. 22

5 MISCELLANEOUS PROVISIONS...................................................................................................... 225.1 CHEQUES ...................................................................................................................................... 22

5.2 FISCAL YEAR: ................................................................................................................................ 225.3 NOTICE ......................................................................................................................................... 225.4 WAIVER OF NOTICE ....................................................................................................................... 235.5 RESIGNATIONS .............................................................................................................................. 23

6 REPORTING AND EVALUATION OF BOARD PERFORMANCE .................................................... 23

6.1 REPORTING PROCEDURES ............................................................................................................. 236.2 MONTHLY AND QUARTERLY REPORTS TO THE BOARD..................................................................... 236.3 ANNUAL REPORTS AND PLANS ....................................................................................................... 246.4 BOARD SELF ASSESSMENT REPORTS............................................................................................. 24

7 AMENDMENTS................................................................................................................................... 25

8 APPROVAL OF THE MANUAL ......................................................................................................... 25

ANNEX 1-SAMPLE PORTFOLIO AGING REPORT ................................................................................. 26

ANNEX 2: SAMPLE BOARD SELF EVALUATION FORM ....................................................................... 27

REFERENCES ............................................................................................................................................ 29


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1 INTRODUCTION

1.1 Background Information of the Institution

XYZ MFI was founded in (Month and Year) as a (NGO, Company Limited

by shares/guarantee, Trust etc)

1.2 Mission and Vision

XYZ MFI mission is to..

XYZ vision is to.

1.3 Goals and Objectives

XYZ MFI goal is to

XYZ MFI specific objectives are..

1.4 Declaration

The governing body of XYZ shall be the board of directors which shall abide by all the under

listed Policies and Procedures.

Name of Board Member Date Signature

1.5 Purpose of the Manual

The purpose of the Manual is to provide the Board with a tool to guide them in MFI Governance.

The Manual outlines the specific roles and responsibilities of the Board, it committees and the

CEO. The Manual also defines the performance monitoring mechanisms including financial

performance to be used by the Board.

1.6 How the Manual is Used

This Manual is to be used by the members of the Board of XYZ MFI and each member of the

Board assumes the responsibility of adapting it fully and updating it regularly as need arises.

This Manual is meant to guide XYZ MFI governance.


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2 SHAREHOLDER STRUCTURE AND GOVERNANCE

2.1 Shareholders Meeting

Meetings of shareholders shall be held at the registered office of the XYZ MFI or at such place,

as may be selected from time to time by the Board of Directors.

2.2 Shareholder List

The secretary to the Board/officer in charge of the share ledger of the MFI shall prepare and

make, at least ten days before every meeting of shareholders, a complete list of the

shareholders entitled to vote at the meeting, showing the address of each shareholder and the

number of shares registered in the name of each Shareholder. Number of shares upon which

any installment is due and unpaid shall be voted at any meeting. The list shall be open to the

examination of any Shareholder, for any purpose germane to the meeting, during ordinary

business hours, for a period of at least ten days prior to the meeting, either at a place within the

city where the meeting is to be held, which place shall be specified in the notice of the meeting,

or, if not so specified, at the place where the meeting is to be held. The list shall also be

produced and kept at the time and place of the meeting during the whole time thereof, and may

be inspected by any shareholder who is present.

2.3 Share certificates

The Share certificates of the bank shall be numbered and registered in the share ledger and

transfer books of the bank as they are issued. They shall bear the corporate seal and shall be

signed by the Chairman.

2.4 Shareholders Meetings/Annual General Meetings

The annual meeting of the shareholders shall be held on the x day of x month each year if not a

legal holiday, and if a legal holiday, then on the next Saturday following at 10:00 o'clock A.M.,

when they shall elect a Board of Directors and transact such other business as may properly be

brought before the meeting. If the annual meeting for election of directors is not held on the

date designated therefore, the directors shall cause the meeting to be held as soon thereafter

as convenient

2.5 Share Transfers

Transfer of shares shall be made on the books of the bank upon surrender of the certificates

thereof endorsed by the person named in the certificate or by attorney, lawfully constituted in


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writing. No transfer shall be made which is inconsistent with the law and the provisions

contained in the memorandum of association.

2.6 Dividends

The Board of Directors may declare and pay dividends upon the outstanding shares of the bank

from time to time and to such extent as they deem advisable, in the manner and upon the terms

and conditions provided by the statute and the Certificate of Incorporation.

2.7 Reserves

Before payment of any dividend there may be set aside out of the net profits of the bank such

sum or sums as the directors, from time to time, in their absolute discretion, think proper as a

reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining

any property of the bank, or for such other purpose as the directors shall think conducive to the

interests of the bank, and the directors may abolish any such reserve in the manner in which it

was created.

2.8 Governance

The proportionate amount of equity that entitles a shareholder to a board seat shall be

discussed and Agreed by the XYZ MFI shareholders. XYZ MFI Shareholders shall also agree

on the voting rights to be allocated.

3 BOARD STRUCTURE

3.1 Overview

The XYZ Board shall consist of the board chair and secretary, Executive Committee, Credit

Committee, Audit Committee and Asset and Liabilities Management Committee, Human

Resource Committees and Nominating Committees.

3.2 Size and Board Composition

a. Size-The business and affairs of this MFI shall be managed by its Board of Directors, not

less than five (5) and not more than nine in numbers2. They shall be elected by the

shareholders at the annual meeting of shareholders of the MFI3, and each director shall

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be elected for a usual term of three4years, eligible for two successive terms, and until

his successor shall be elected and shall qualify or until his earlier resignation or removal.

b. Composition- At minimum the XYZ Board shall be composed of members with

qualifications and skills that meet local requirements if any and ideally include expertise

in Banking, Economics, Microfinance Industry Expertise, Finance and Accounting, Legal

and Business Management Skills including marketing and Information Technology.

c. Representation5- Every investor that hold X% in equity shall be entitled to one Board

Seat while investors that hold over X% in equity shall be entitled to 2 board seats. Board

seats will represent the voting rights.

3.3 Minimum Eligibility Criteria of the Board Members

To qualify as a member of XYZ Board, at minimum, one must be a person:

Of 18 years of age or above

With integrity and trustworthiness

With deep commitment to the institutions mission and shares the same values

as those of the Institution

With leadership skills, visionary thinkers, and managers

With technical expertise and experience relevant to the organization (i.e.,

financial, legal, and marketing), etc.

Of Independent minds that are not beholden to the chairperson or CEO;

With Basic genuine commitment to the activities of the organization;

Willing to set aside time for the institution activity.

With good communication skills and interpersonal skills

With Objectivity/independent thinking

Approved by the Regulatory Body6

3.4 Roles and Responsibilities of the Board

XYZ MFI Board shall at minimum carry out the following functions and shall be Responsible for:

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a. General Responsibilities

Establishing policy, directing the activities of the elected officials and committees, and

approving all action pertaining to the business of XYZ.

Acting honestly, and maintaining confidentiality of information shared with and amongBoard Members

Exercising the degree of care and diligence in the discharge of their duties that a

reasonable person in a like position would exercise in the microfinance institutions

circumstances.

Performing their duties with the requisite degree of skill.

Giving necessary attention to the affairs of the microfinance institution. This also

includes exercising a degree of supervision over officials of the company.

Being liable for all acts arising from the performance of their duties as directors of amicrofinance institution.

Being accountable to the shareholders for all the activities of the microfinance institution.

Establishing effective systems and processes of identifying, analyzing and managing

risks and putting in place disaster management procedures.

Balancing Commercial Objectives and Social service Obligation by ensuring that they

are clearly documented

Providing for transparent and clear lines of responsibility and accountability.

Appointing the right people with the right skills for all jobs.

Developing transparent and fair recruitment and remuneration procedures.

Creating and maintaining effective communication channels at all levels.

Establishing and enforcing appropriate codes of conduct.

Overseeing the necessary assignments, delegating implementation to the management

team with appropriate control measures.

Appointment of the CEO through a competitive selection process and in accordance with

the objectives of the microfinance institution.

Preparation of a detailed job description for the CEO.

Approving a written code of best practice setting the ethical and behavioral expectations

of both the directors and employees.

b. Legal Obligations

The XYZ MFI Board shall ensure that the:


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Institution complies with its articles of incorporation, bylaws, and internal policies

and procedures.

Institution maintains its legal status.

The institution complies with government rules and regulations7

Are keenly aware of the degree of responsibility and immunity provided for them by

local law.

c. Strategic Direction

XYZ Board shall ensure that:

The institution has a formal vision and mission statement that clarifies the purpose of the

institution

The vision and mission is understood and provides management with direction and an

enabling environment to fulfill the same.

a business strategy and organizational structure is established and maintained

Review the vision regularly every 3-5 years and amend the vision statement if necessary

to respond to a changing environment or shifting priorities.

Effective strategic planning, the management prepares the plan and the board overseas

and approves the plans.

o setting the institutions strategic course

o setting broad operational policies for the Institution

o resolving strategic issues as they arise

d. Fiduciary8

XYZ Board shall ensure that:

The institutions properties are managed in a manner that is consistent with agreed-upon

values and goals

Has adequate resources to implement the agreed upon plans

Understanding the short- term and long term financial position in relation to

the strategic plan

Taking necessary action to secure additional resources needed for

implementation of the plans

7Will vary with the institutions corporate structure.

8Afiduciary is a person or group holding assets in trust on behalf of another person or group


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Guarantees the long-term viability in balancing between long term and short

term objectives on use of funds.

e. Oversight

The XYZ Board shall:

Monitors operations and business performance through frequent and transparent

reports, regular board and committee meetings, periodic on site visits and internal and

external audits

Evaluates the institution performance against other MFIs that are similar based on age

and size of the institution, its target market and the region in which it operates.

Assesses and responds to internal and external risks

- Internal risks include portfolio deterioration, fraud, over expansion and client

desertion.

- External risks e.g. natural calamity, civil strife, financial crisis and government

intervention

- Board should establish a system that monitors early warning signals and ensures

that the MFI operated prudently in such challenges.

Protects the institutions in times of crises by intervening as necessary and developing

plans to address the problem

3.5 Board Chair and the Committees

3.5.1 Board ChairThe Board members of XYZ MFI shall elect non-executive chair by written secret ballot9, who

shall in addition to his/her individual responsibilities as a board member, provide leadership in

policy setting and management oversight. The Chairman is the Senior Leader of the Board of

Directors of XYZ who presides at all meetings of the Board of Directors, the executive

committee and other meetings as required, and to guide the board in the enforcement of all

policies and regulations relating to XYZ. The Chairman oversees implementation of corporate

and local policies and ensures that appropriate administrative systems are established and

maintained. Specific responsibilities of the Chair include:

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Work with the Managing Director, Board Officers, Committee Chairs and Company

Secretary to develop the agendas for board of directors meetings, and presides at all

board and business meetings

Works with the board of directors and paid leadership, in accordance with Policies, to

establish and maintain systems for:

Planning the human and financial resources for XYZ and for setting priorities for

future development and growth

Reviewing operational and service effectiveness and setting priorities for future

development and growth

Controlling fiscal affairs

Acquiring, maintaining, and disposing of property

Maintaining a public relations program

Ensuring ethical standards of XYZs are maintained

Be directly responsible to the board of directors for the administration of the XYZ

Serve as the official representative and spokesperson for XYZ

Perform any other duties that are necessary for the success of XYZ

3.5.2 Board Secretary

The Key Responsibilities of the Board Secretary shall include:

In advance of meetings, Arrange logistics for Board Members during meeting; provide

written agendas of the sessions of the full board and the meetings of the standing

committees.

Take minutes of meetings, prepare and provide written minutes to board members in the

specified time;

Files approved minutes and maintains the official list of board members in accordance

with procedure.

Coordinate board meetings in collaboration with the Chairman of the board

oIssue circulars/notice on the Boards instructions

oCollate all Board Memoranda

oArrange logistics for Board Members during meeting

oEnsure that the amended minutes of the Board are made known to the relevant

departments for immediate action

Certify and keep at the principal office of XYZ:


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oThe original or a copy of the registration certificates, By-Laws as amended or

otherwise altered to date.

oA book of minutes of all meetings of the directors and meetings of committees.

Minutes shall record time and place of meeting, whether regular or special, how

called, how notice was given, the names of those present or represented at the

meeting and the proceedings thereof.

Ensure that all notices are duly given in accordance with the provisions of the By-Laws

or as required by law

Be custodian of the records and of the seal, as authorized by law or the provisions of the

By-Laws, to duly executed documents of XYZ

Ensure compliance with the requirements of regulatory authorities

Refer all legal matters to solicitors such as:

oBoard resolutions

oDocumentation with corporate affairs such as increase in share capital

In general perform all duties incident to the office of the secretary and such other duties

as may be required by law, by Articles of Incorporation, or by By-Laws, or which may

be assigned to him or her from time to time by the Board of Directors

3.5.3 Executive Committees

The executive committee shall consist of representative members of various sub-

committees and its responsibilities shall include:

Discussing issues in preparation for a full board discussion;

Makes decisions that the board has assigned to it and addresses policy matters

that the board has delegated to it;

Highlights agenda topics that the full board should discuss; and

Establishes an initial level of consensus on difficult issues that the board

must address.

Meet monthly and report to the Board quarterly

3.5.4 Audit and Internal Control Committee

The audit committee shall assist the board in raising the standards of corporate

governance and internal controls by10:-

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Ensuring that financial and operational information is prepared in a timely and

accurate manner;

Improving the quality of financial record keeping and reporting;

Strengthening the effectiveness of internal and external audit functions;

Strengthening the internal control environment and risk management;

Enhancing public confidence in the credibility and stability of the institution;

Monitoring incidences of non-compliance with the Act and regulations issued there

under as well as any other relevant legislations and regulations, and advising the

board on the best solutions;

Monitoring the ethical conduct of the institution and developing the code of conduct

and ethical

standards and requirements, including effectiveness of procedures for handling and

reporting complaints;

To review and assess the integrity of the internal and risk control systems;

Meet with the Internal Auditor(s) every month

Report to the Board quarterly

3.5.5 Credit and Risk Management Committee

XYZ MFI credit committee shall11:-

To set out the nature, role, responsibility and authority of the risk management

function of the institution;

Review and oversee the overall lending policy, including monitoring and risk

management tools;

Review loan applications if exceeding the established discretionary approval limits;

Review lending practices and quality of loan portfolio;

Ensure that there are effective procedures and adequate resources to identify and

mitigate credit risk;

Monitor and evaluate all issues that may materially impact on the present and future

quality of the loan portfolio and credit risk management;

Delegate and review lending limits to the sanctioning arms of the institution;

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Ensure adequate provisions for loans and advances, bad and doubtful debts and

write off policy;

Conduct loan reviews independent of any person or committee responsible for

sanctioning credit;

Ensure that the credit policy and risk lending limits are reviewed at least once on an

annual basis and as when the environment so dictates; and

Set limits on lending exposure and specific actions for the PAR in line with the

institutions risk management programs and market conditions.

Meet every month and report to the board every quarter

3.5.6 Asset Liability and Management Committee (ALCO)

The ALCO shall drive the strategy for the institution in terms of the mix of assets and

liabilities and its expectations of the future and the potential consequences of interest rate

movements, liquidity constraints, and capital adequacy.

The responsibilities12of the ALCO shall include:-

To provide an independent and objective oversight and review of the information

raised by management in different levels;

To monitor limits on loans to deposit and loans to capital ratios as well as the

percentage on a particular deposit category as set by the board.

To monitor limits on maximum and minimum maturities for all categories of assets

and liabilities set by the board;

To monitor limits on the sensitivity of the net interest margin on changes in market

interest rates as set by the board;

To monitor maximum percentage imbalance between rates and sensitive assets

and liabilities as set by the board;

To monitor limits on minimum spread acceptable between costs and yields of

liabilities and assets as set by the board;

To monitor limits on minimum liquidity provision to be maintained to sustain

operations while longer term adjustments are set by the board;

To monitor sources of funds;

To monitor the institutions policies, procedures and holding portfolio to ensure that

it achieves its goals; and

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Generally to implement the funds management policy of the institution

Meet every month and Report to the Board every quarter

3.5.7 Human Resource and Compensation Committee

The Human Resource and Compensation Committee shall work closely with the Human

Resource department of XYZ MFI and will be responsible for:

Reviewing strategic personnel issues

Establish and periodic review of Compensation Policy

Handle staff related problems such as law suit or grievance against the institution

Review and approval of Human Resource Policies

3.5.8 Nomination Committee

The nominations committee is responsible for:

Develops Board members roles and responsibilities

Nomination of new board members who are independent of management and

sufficiently skilled and bring these candidates for full board consideration and

vote.

Orientation of new directors seeks ongoing exposure of current directors to topics

relevant to the institution and the microfinance field.

Coordinating the assessment process and removing any inactive directors.

3.5.9 Ad Hoc Committees

Ad hoc committees shall be formed to address specific issues and will serve for that

period until the issue is sorted only.

4 BOARD POLICIES AND PROCEDURES

4.1 Appointment/Election of Board Members

Appointment of the Board of Directors shall be appointed/elected by13..Each Name

forwarded for election/appointment for the post of Board Member must satisfy the minimum

criteria as set out in sub-section 2.3etc etc.

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4.2 Information and Communication Procedures

Every board member shall be supplied with all establishment instruments, all legal

documents, the mission statement, vision and strategy documents of the XYZ MFI on

first appointment

Every board member shall receive a copy of the board manual together with a letter of

appointment on first appointment

Every board member shall receive copies of all policy documents including organization

policy documents, personnel and financial manuals on first appointment and every time

these are reviewed.

The Boards information requirements shall be communicated to management on a

regular basis

4.3 Code of Ethics for Board Members

The following code of ethics has been adopted by the Board of Directors and sets forth the XYZ

the Board of Directors expects from its members:

To bind themselves to uphold, honor and respect the code of ethics of the organization on

first appointment and to resign where their actions are called into question

To become familiar with and committed to the major responsibilities of a governing board:

To devote time to learn how XYZ functions its uniqueness, strengths and needs its

place in the industry.

To carefully prepare for, regularly attend, and actively participate in board meetings and

committee assignments.

To accept and abide by the legal and fiscal responsibilities of the board as specified by

bylaws, policies and regulations.

To vote according to ones individual conviction, to challenge the judgment of others when

necessary; yet to be willing to support the decision of the board and work with fellow board

members in a spirit of cooperation. To recognize that the board Chairman alone speaks for

the board.

To maintain the confidential nature of board deliberations and to avoid acting as

spokesperson for the entire board unless specifically authorized to do so.

To understand the role of the board as a policy-making body and to avoid participation in

administration policy.


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To learn and consistently to use designated institutional channels when conducting board

business (e.g., responding to staff and board member grievances, responding to inquiries

concerning the status of a managing director search, etc.)

To comply with conflict of interest policy and disclosure developed by the board.

To refrain from actions and involvement that might prove embarrassing to XYZ and to

resign if such actions or involvement develop.

To make judgments always on the basis of what is best for XYZ as a whole.

4.4 Confidentiality Policy

XYZ Directors must:

Ensure that all information which is confidential or privileged or which is not publicly

available is not disclosed inappropriately

Ensure that all non-public information about other persons or firms acquired by XYZpersonnel in dealing with outside firms on behalf of XYZ is treated as confidential and not

disclosed.

4.5 Conflict-of Interest and Disclosure Policy

No board member shall use his or her position, or knowledge gained there from, in such

a manner that a conflict between the interest of XYZ or any of its affiliates and his or her

personal interests arises.

Each board member has a duty to place the interest of XYZ foremost in any dealings

with XYZ and has a continuing responsibility to comply with the requirements of this

policy.

The conduct of personal business between any board or committee member and XYZ

and any of its affiliates is prohibited.

Board or committee members may not obtain for themselves, their relatives, or their

friends a material interest of any kind from their association with XYZ.

If a board member has an interest in a proposed transaction with XYZ in the form of a

significant personal financial interest in the transaction or in any organization involved in

the transaction, or holds a position as board member, employee or officer in any such

organization, he or she must make full disclosure of such interest before any such

discussion.


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Any board or committee member who is aware of a potential conflict of interest with

respect to any matter coming before the board or committee shall not be present for any

discussion of or vote in connection with the matter.

4.6 Credit PoliciesThe Board of XYZ Microfinance Bank has overall responsibility for the credit policy of the bank

and subsequent revisions of same.

4.6.1 Lending Limits

As set out in the credit policies Manual, the lending limits14for approval for the XYZ MFI shall be

as follows:

Up to 20,000..Credit/Loan officer of the MFI (meaning the loan officer can approve loans up

to 20,000)

Up to 50,000Senior Credit Officer (loans from 20-50000 require senior credit officer

approval also)

Up to 100,000.Branch Manager (50-100000 requires branch manager approval)

Up to. 500,000.Credit Committee at the Head Office(etc)

Up to 100,000.The CEO

Over. 1,000,000Board Credit Committee/Full Board

4.6.2 Provisions

It is Standard Microfinance Bank policy to maintain adequate provisions for all doubtful debts in

the credit-risk portfolio. On a quarterly basis, the adequacy of the provision shall be reviewed by

the Board Credit Committee.

4.6.3 Write Off Policy

All or a portion of classified as a loss within 9015days of their being classified as loss shall be

written off if there are no recoveries within that period. The decision to write off the loan will be

reached at after all efforts to recover the loan are unsuccessful and all or part of the loan is

deemed uncollectable or no realistic prospect of recovery exists.

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attend proceedings of the hearing. Deliberations of the Board will be in a closed session, and

will be confidential proceedings.

4.8 Appointment of the CEO

The appointment of the CEO with relevant qualifications and experiences shall be carried out by

the Board of directors through a competitive selection process. The said CEO shall have not

less than five years experience in business banking, economics, law or finance at senior

management level with experience in microfinance. The Board shall also prepare detailed Job

description of the CEO in compliance with the Central Bank Regulations if any.

4.9 Expense Reimbursement Policy

Members of the Board of Directors, committees, special committees, staff, and authorized

representatives of XYZ shall be reasonably reimbursed for expenses incurred while on XYZ

business. The XYZ Expense Statement is to be used for requesting reimbursement and should

be submitted within two weeks of completion of the trip, explaining in full all unusual items or

amounts. Receipts are required for all expenditures billed directly to XYZ including airfare

purchased through XYZ, travel agent, and applicable hotel charges. At least two weeks after

receipt of claims at XYZ should be allowed before reimbursement.

4.10 Public Relations Policy

To ensure the quality and consistency of XYZ information disseminated to media sources, the

following policy shall be enforced:

All media contacts are to be handled by the Managing Director/GM/CEO or his/her

designee with the approval of the Board, regardless of who the media representative is

or whom he/she represents or how innocuous the request.

All press releases and other promotional materials are to be approved by the Board or

its designee prior to dissemination. Failure to comply with XYZ media policy shall be

grounds for disciplinary action.

4.11 Board Meetings Procedures

4.11.1 Regular Meetings

Regular meetings of the Board shall be held every quarter, at the registered office of the MFI, or

at such other time and place as shall be determined by the Board. The meeting will be to

deliberate on the affairs and financial condition of the institution and to provide oversight and

guidance to the management.


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4.11.2 Special Meetings

Special Meetings of the Board may be called by the Chairman on 2 days notice to each director,

either personally or by mail, fax, telephone, text; special meetings shall be called by the MD or

Secretary in like manner and on like notice on the written request of a majority of the directors in

office.

4.11.3 Quorum

At least three directors shall constitute a quorum for the transaction of business.

4.11.4 Consent in Lieu of Meeting

Any action required or permitted to be taken at any meeting of the Board of Directors, or of any

committee thereof, may be taken without a meeting if all members of the Board or committee,

as the case may be, consent thereto in writing, and the writing or writings are filed with the

minutes of proceedings of the Board or committee.

4.11.5 Telephone Conference

One or more directors may participate in a meeting of the Board, or a committee of the Board or

of the shareholders, by means of conference telephone or similar communications equipment

by means of which all persons participating in the meeting can hear each other; participation in

this manner shall constitute presence in person at such meeting.

4.12 Compensation Policy

Directors as such, shall not receive any stated salary for their services, but by resolution of the

Board, a fixed sum and expenses of attendance may be given at each regular or special

meeting of the Board PROVIDED, that nothing herein contained shall be construed to preclude

any director from serving the MFI in any other capacity and receiving compensation therefore.

4.13 Removal Policy

a) Any director or the entire Board of Directors may be removed, with or without cause, by

the holders of a majority of the shares then entitled to vote at an election of directors,

except that when cumulative voting is permitted, if less than the entire Board is to be

removed, no director may be removed without cause if the votes cast against his

removal would be sufficient to elect him/her if then cumulatively voted at an election of

the entire Board of Directors, or, if there be classes of directors, at an election of the

class of directors of which he/she is a part.


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b) Any Director (s) who does not contribute to the governance of the organization and is

uninterested in improving his/her performance shall be removed from the Board.

4.14 Vacancies at the Board

4.14.1 Sudden VacanciesAny vacancy occurring in the Board by death, resignation, removal or otherwise, shall be filled

by the Board of Directors. Vacancies and newly created directorships resulting from any

increase in the authorized number of directors may be filled by a majority of the directors then in

office, although not less than a quorum, or by a sole remaining director. If at any time, by

reason of death or resignation or other cause, the MFI should have no directors in office, then

any officer or any shareholder or an executor, administrator, trustee or guardian of a

shareholder, or other fiduciary entrusted with like responsibility for the person or estate of

Shareholder, may call a special meeting of shareholders in accordance with the provisions ofthese By-Laws.

4.14.2 Resignations Effective at Future Date

When one or more directors shall resign from the Board, effective at a future date, a majority of

the directors then in office, including those who have so resigned, shall have power to fill such

vacancy or vacancies, the vote thereon to take effect when such resignation or resignations

shall become effective.

5 MISCELLANEOUS PROVISIONS

5.1 Cheques

All cheques or demands for money and notes of the MFI shall be signed by such officer or

officers as the Board of Directors may from time to time designate.

5.2 Fiscal Year:

The fiscal year shall begin on the16

5.3 Notice

Whenever written notice is required to be given to any person, it may be given to such person,either personally or by sending a copy thereof through the mail, courier, by fax, charges pre-

paid, to his address appearing on the books of the MFI, or supplied by him/her to the MFI for the

16


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purpose of notice. If the notice shall be deemed to have been given to the person entitled..

Such notice shall specify the place, day and hour of the meeting and, in the case of a special

meeting of shareholders, the general nature of the business to be transacted.

5.4 Waiver of NoticeWhenever any written notice is required by statute, or by the Certificate or the Bylaws of XYZ

MFI a waiver thereof in writing, signed by the person or persons entitled to such notice, whether

before or after the time stated therein, shall be deemed equivalent to the giving of such notice.

Except in the case of a special meeting of shareholders, neither the business to be transacted

at nor the purpose of the meeting need be specified in the waiver of notice of such meeting.

Attendance of a person either in person or by proxy, at any meeting shall constitute a waiver of

notice of such meeting, except where a person attends a meeting for the express purpose of

objecting to the transaction of any business because the meeting was not lawfully called or

convened.

5.5 Resignations

Any director or other officer may resign at anytime, such resignation to be in writing, and to take

effect from the time of its receipt by the MFI, unless some time be fixed in the resignation and

then from that date. The acceptance in writing of a resignation shall be required to make it

effective.

6 REPORTING AND EVALUATION OF BOARD PERFORMANCE

6.1 Reporting Procedures

The Internal Auditor shall report at least monthly to the Board Audit Committee on the

financial and operational situation of the Institution.

The Board Audit Committee in turn shall report to the Board the financial and operational

situation of the institution every quarter

The CEO, assisted(optional) by the Credit/operations manager and finance manager

shall report to the Credit Committee at the Board the activities and Portfolio performance

The Finance manager can be invited to the Board meeting to explain the financial ratiosand their interpretation to the Board whenever necessary

6.2 Monthly and Quarterly Reports to the Board

The following minimum reports shall be submitted to the Board Monthly and quarterly:

Income Statements


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Balance sheet

Statement of change in financial position of the Institution/Cash Flow

Activity and Portfolio Report including portfolio aging report

6.3 Annual Reports and PlansThe CEO shall present at each annual meeting a full and complete statement of the business

and affairs of the MFI for the preceding year. Such statement shall include:

Income statements,

Balance sheet,

Cash flow statements

Activity and Portfolio Report including portfolio aging report(Sample format in

Annex 1)

Budget Variance report

Operational plan and Budget for new fiscal year

6.4 Board Self Assessment Reports

The Board shall assess its performance annually to identify its strengths and weaknesses and

strategy on how to overcome the weaknesses. Areas of assessment shall include:

Definition, understanding and interpretation of the Institutions vision and mission

Formulation of strategy and operational plans

Time devoted to institutions activities

Attendance to Board Meetings

Board communication with the management and staff of the institution

Boards efficiency in formulation and approval of operational policies and

procedures for the Institution

Board understanding and adherence to policies and procedures set forth in the

manual

Board understanding of institutions financial performance

Boards understanding of the legal and regulatory framework within which the

institution operations

Board composition/mix of skillsetc etc. (Sample evaluation form is given in

Annex 2)


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7 AMENDMENTSAmendments

These Policies and Procedures may be amended or repealed by the vote of Board members at

any regular or special meeting of the Board, duly convened after notice to the Board of that

purpose.

8 APPROVAL OF THE MANUAL

The policies and Procedures contained in this manual has been read and understood by the

Board Members of XYZ MFI and all Board Members agree to abide by them. These Manual is

thereof approved and adopted by the Board on this day of.month..year

Signature.Date.Name of the Board Member





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ANNEX 1-SAMPLE PORTFOLIO AGING REPORT

Period Ending..

Number of

Days Past Due

No. of

Loans/ACs

Outstanding

LoanPortfolio

Required

Provisioning1%

Required

provisioningAmount

Security

Held

Minimum

Provision%

Portfolio

AtRisk

0 days(Normal) 1%

1-30days(Watch)

5%

31-60days(Sub-standard)

25%

61-90days(Doubtful)

75%

More than 90days(Loss)

100%

TotalRescheduled/Renegotiatedloans

0 days(Normal) 1%1-30days(Watch)

5%

31-60days(Sub-standard)

25%

61-90days(Doubtful)

75%

More than 90

days(Loss)

100%

Grand Total

Authorized Signatory:

Name of Officer.

Designation..

Signature

Date..


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ANNEX 2: SAMPLE BOARD SELF EVALUATION FORM

1.Functions of The Board YES NO

The board knows and understands the MFI benefits, values,

philosophy, mission and vision and reflects this understanding on key

issues throughout the year

Such beliefs, values, philosophy, mission and vision are set and are

consistent with the MFI status

The board devotes significant time and serious thought to the

organizations long-term objectives and to the strategic options

available to achieve them

The board has defined and communicated to management the scope

and powers, roles and responsibilities to be adhered to by

management to meet routine and exceptional circumstances

The board ensures that the organization has sufficient and appropriate

resources to achieve its strategic goals

Proposals from management are analyzed and debated vigorously

before being approved by the board. A proposal that is considered

inappropriate is declined

The board has an operating plan that specifies its functions, activities

and objectives

When appropriate the board seeks counsel from professional advisors

The CEO/Managers remuneration and performance is reviewed and

determined by the board

he board determines annually the objectives and measurement criteria

for the CEO/Manager

A broad range of appropriate performance indicators are used to

monitor the performance of management. Reliability is not placed

solely on the financial statements provided by management

The board has formed the relevant board committees:

The board has procedures in place to ensure that the organization is

meeting its legal responsibilities


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Formal review of the boards performance has become an integral part

of the culture of the board

The board ensures all conflicts of interest are:

Declared

Resolved

Every board member has been supplied with a letter of appointment

The letter of appointment defines the roles and functions of the board

and the specific role of each director

2.Board Meeting Management and Procedures

Every board member has been supplied with a board manual and acopy of standing orders and regulations governing conduct of boardmeetings

Every board member was supplied with a calendar of meetings

showing dates of board meetings, committee meetings etc and key orcritical events of the MFI

Board meetings are conducted in a manner that encourages opencommunication, meaningful participation and timely resolution ofissues

Sufficient time is provided during board meetings for thoughtfuldiscussion in addition to management dialogue

Board time is used effectively so that the board adds value tomanagement

Formal meeting and reporting procedures have been adopted by theboard

Board members receive timely and accurate minutes, advance written

agendas and meeting notices; and clear and concise backgroundmaterial to prepare in advance of meetings

All board members are fully informed of relevant matters and there arenever any surprises

Absenteeism from board meetings is the exception rather than the rule

Board meetings are facilitated , but not overtly influenced by thechairperson

All board members receive detailed board papers, copies of draftminutes and agenda papers in advance

All proceedings and resolutions of the board are recorded accurately,adequately and on a timely basis

3. etc..


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References

Joana Ledgerwood and Victoria White. 2006. Transforming Microfinance Institutions The World

Bank, Microfinance Network

Central Bank of Kenya. 2006. The Microfinance Act-No.19 of 2006 Regulations

Nancy Natilson, Pro Mujer Tillman A. Bruett, Alternative Credit Technologies. 2001. Financial

Performance: A guide for Board Members of Microfinance Institutions

manual de jd

Documents