Board structure-performance relationship in microfinance institutions (MFIs) in an emerging economy

Sujani Thrikawala, Stuart Locke, Krishna Reddy
  • Corporate Governance, October 2016, Emerald
  • DOI: 10.1108/cg-12-2015-0166

Do board structure have an impact on MFIs performance in the emerging markets

What is it about?

The purpose of this paper is to investigate the relationship between board structure, financial performance and outreach of microfinance institutions (MFIs) in Sri Lanka, using unbalanced panel data for 300 MFI-year observations for the period 2007 to 2012. Design/methodology/approach – Empirical research relating to governance practices in MFIs is still in its infancy and further studies are needed to determine how improved governance practices may enhance sustainability and outreach of MFIs, especially in emerging economies. The authors use regression techniques to examine whether the board structure has an influence on MFI performance. Findings – After controlling for internal corporate governance variables, regulatory status, size, age, leverage, and year effects, the authors report that board structure does contribute to the financial performance and outreach of MFIs in Sri Lanka.

Why is it important?

This study enables individual MFIs to evaluate potential restructuring of their boards to promote a dual mission and achieve more accelerated economic development. It enables individual MFIs to evaluate potential restructuring of their boards to promote a dual mission and achieve more accelerated economic development. Social Implications – The findings may encourage policy-makers to promulgate policy guidelines to deepen MFI outreach to the poorest people.

Perspectives

Professor Stuart Locke
University of Waikato

Inconsistent findings in prior studies and a general lack of empirical results for the microfinance industry have led to an unclear message regarding corporate governance and MFI performance. This study fills the research gap, contributing to the existing corporate governance literature in microfinance sector and providing evidence from an emerging economy.

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http://dx.doi.org/10.1108/cg-12-2015-0166

The following have contributed to this page: Dr Krishna Reddy and Professor Stuart Locke