Assessing the viability of a rural microfinance network: the case of FONGS Finrural

5.3 Governance Analysis

The figure 17 shows governance situation of the MFIs based on the aggregated index of governance.

Figure 17: Aggregated Index of Governance

Source: Our survey (may-august 2012)

The analysis of the governance based on the aggregated index of governance reveals an average index of 62% meaning that all the MFIs are performing in governance issue. 43% of the MFIs recorded a governance index below 60%, others 43% between 60 and 65% when only 14% recorded an index over 65%.

Overall, prudential ratios are not fully respected by any of the MFIs. Moreover Committee of Control which endeavours the role of internal audit does usually not operate as required. Excepted this year when the FONGS committed a legal and external audit for 2011 fiscal year, no external audit was done upon the initiative of the MFIs.

Only one MFI holds procedure manuals. Yet the latter is not up to date, neither in accordance with the new regulation.

Regarding the management independency, the survey MFIs are self managed institutions and operate as stated. Any of them is under the supervision authority's management. However, it is important to underscore the influence of the mother association on the management of the MFIs, especially the mother association board members. In most of the cases, certain mother association board members are elected in the MFIs boards. As consequence, the mother association can sustain their social vision inside the MFIs.

Most of the MFIs show good performance in administration. The overall average score is 80% meaning the existence of required management committees, the execution of general assembly decisions, the difference between the board of directors and the staff.

5.4 Linking financial performance, social performance and governance in MFIs

The most commonly used test to appreciate the linkages between two variables remains the linear regression often measured by the coefficient of correlation r of Pearson. However when the variables are ordinal, discrete or when the values themselves are not meaningful or don't fulfil the normality conditions are verified, it is recommended to use the rank coefficient ñ of Spearman since the latter is based on rank orders and is not affected by outliers.

To deepen our perception on the relation between financial, social performance and governance, we compute the rho coefficient of Spearman. The OSS used as financial performance indicator and the governance index have been crossed with the five dimensions of social performance and the global social performance score as well.

Table 1: Correlations between OSS, Social Performance Indicators and Aggregated Index of Governance

Spearman's rho		OSS	Social mission	Access and outreach	Customers services	Human resources	Environment and social practices	Social Performance Score
Operational Self sufficiency (OSS)	Cor.	1.000	.364	-.414	.164	.927^**	.179	.487
	Sig		.423	.355	.726	.003	.702	.268
	N	28	7	7	7	7	7	7
Governance Index	Cor.	.231	-.039	.448	.766^*	,280	.810^*	.808^*
	Sig.	.618	.933	.314	.045	.543	.027	.028
	N	7	7	7	7	7	7	7

**. Correlation is significant at the 0.01 level (2-tailed). Source: Our survey (may-august 2012)

*. Correlation is significant at the 0.05 level (2-tailed).

The table evinces no significant relationship between governance and OSS meaning that for our surveyed MFIs the governance level does not affect the financial performance. As illustration, the MEC of Tattaguine showed acceptable governance index in 2011 (64) but low financial performance (96.4%) the same year. This finding diverges with Ben Soltane (2012) according to whom the governance in MFIs mainly focuses on financial performance.

On the other hand, there is a neutral relationship between financial performance and social performance; which confirms many the findings of Ben soltane (2012) between financial and social performance However, OSS is positively correlated to human resources. This could be also evident as a better care of human resources might lead to better efficiency even if operational expenses do not change. For Bédécarrats, Angora & Lapenu (2009), the more the employees are esteemed by the MFI, the more they are eager to obtain good performances for the MFI in return.

The results reveal that for the surveyed MFIs, the governance index is positively correlated to the global social performance score. Moreover, the governance index is positively correlated to customers' services and environmental and social practices. This is in accordance with Ben Soltane (2012) according to whom the institutional form of an MFI (viewed here through the governance) influences its social practices. As the surveyed MFIs are savings and credit cooperatives, the financial products are regularly tailored according to members' needs and suggestions from Annual General Meetings

Despite these aforementioned results, it seems important to underpin that the exact shape of the relations pertain to the context. That is why a strong socially oriented approach does not directly lead to low financial performance and a strong financially oriented approach does not lead irremediably to a very low social performance^19(*). Moreover as mere correlation analysis between social and financial variables is restricted (Bédécarrats, Angora & Lapenu, 2009), deepened researches should be done do identify the form of relationship exist.

* ¹⁹ See https://ojs.lib.byu.edu/spc/index.php/ESR/article/viewFile/1524/1485