Outreach and profitability of microfinance institutions: the role of governance

Abstract

Purpose – This paper aims to examine how selected governance indicators impact on performance measures of outreach and profitability in microfinance institutions (MFIs). Design/methodology/approach – The paper adopts a quantitative approach based on both primary and secondary data from conveniently sampled 52 microfinance institutions. A panel data technique is employed as the key analytical framework. Findings – It is shown that governance plays a critical role in the performance of MFIs and that the independence of the board and a clear separation of the positions of a CEO and board chairperson have a positive correlation with both performance measures. Research limitations/implications – It would have been appropriate to have a larger number of MFIs for the study. This limitation however does not compromise on the validity of the conclusions based on the findings of the study. Practical implications – In the context of multi-dimensional and sometimes conflicting objectives facing MFIs, a clear balancing act of social objectives and institutional sustainability to ensure effective performance of MFIs is recommended. Originality/value – Studies on governance and its relationship with firm behaviour is limited especially in Sub-Saharan Africa. Its application in the microfinance sector with its peculiar characteristics is the added value of this paper.Corporate governance, Finance, Ghana, Performance management