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Outreach and profitability of microfinance institutions: the role of governance

Author

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  • Anthony Kyereboah‐Coleman
  • Kofi A. Osei

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.

Suggested Citation

  • Anthony Kyereboah‐Coleman & Kofi A. Osei, 2008. "Outreach and profitability of microfinance institutions: the role of governance," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 35(3), pages 236-248, August.
    • Handle: RePEc:eme:jespps:v:35:y:2008:i:3:p:236-248
    DOI: 10.1108/01443580810887797
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    Citations

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    Cited by:

    1. Khalid, Maizatul Akmar & Alam, Md. Mahmudul & Said, Jamaliah, 2019. "Empirical Assessment of Good Governance in the Public Sector of Malaysia," SocArXiv 84ewh, Center for Open Science.
    2. Ahmad Nawaz & Sana Iqbal & Sadaf Ehsan, 2018. "Does Social Performance Drive Corporate Governance Mechanism In Case of Asian MFIs? An Issue of Endogeneity," Global Business Review, International Management Institute, vol. 19(4), pages 988-1012, August.
    3. Nawaz, Ahmad & Iqbal, Sana, 2015. "Financial Performance And Corporate Governance In Microfinance: Who Drives Who? An Evidence From Asia," MPRA Paper 65327, University Library of Munich, Germany.
    4. Ahmed Bouteska, 2020. "Do Board Characteristics Affect Bank Performance? Evidence from the Eurozone," Journal of Asset Management, Palgrave Macmillan, vol. 21(6), pages 535-548, October.
    5. Janda, Karel & Turbat, Batbayar, 2013. "Factors Influencing Portfolio Yield of Microfinance Institutions in Central Asia," MPRA Paper 49549, University Library of Munich, Germany.
    6. Iqbal, Sana & Nawaz, Ahmad & Ehsan, Sadaf, 2019. "Financial performance and corporate governance in microfinance: Evidence from Asia," Journal of Asian Economics, Elsevier, vol. 60(C), pages 1-13.
    7. Mohamed Adaskou & Hssoune Abdelkarim, 2021. "Determinants of the financial viability of Moroccan microcredit associations: An analysis by panel data [Les déterminants de la viabilité financière des associations de microcrédit marocaines : Une," Post-Print hal-04232431, HAL.
    8. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    9. Aaron H. Anglin & Jeremy C. Short & David J. Ketchen Jr. & Thomas H. Allison & Aaron F. McKenny, 2020. "Third-Party Signals in Crowdfunded Microfinance: The Role of Microfinance Institutions," Entrepreneurship Theory and Practice, , vol. 44(4), pages 623-644, July.
    10. Shubhashis Gangopadhyay & S.K. Shanthi, 2012. "Governance Issues in Indian Microfinance," Chapters, in: James R. Barth & Chen Lin & Clas Wihlborg (ed.), Research Handbook on International Banking and Governance, chapter 36, Edward Elgar Publishing.
    11. Bibi, Uzma & Balli, Hatice Ozer & Matthews, Claire D. & Tripe, David W.L., 2018. "New approaches to measure the social performance of microfinance institutions (MFIs)," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 88-97.
    12. Ben Soltane BASSEM, 2011. "Governance Quality and MFIS Repayment Performance," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 8, pages 159-168, December.
    13. Miranda-Reyna, Montserrat & Carrillo-Urbina, Gilberto Jaime, 2017. "Impacto de los indicadores financieros en el desempeño de las instituciones microfinancieras en México: un estudio de panel desbalanceado," eseconomía, Escuela Superior de Economía, Instituto Politécnico Nacional, vol. 12(46), pages 41-60, Primer se.
    14. Bibi, Uzma & Balli, Hatice Ozer & Matthews, Claire D. & Tripe, David W.L., 2018. "Impact of gender and governance on microfinance efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 307-319.
    15. Janda, Karel & Turbat, Batbayar, 2013. "Econometric Analysis of Profitability of Microfinance Institutions in Selected Asian Countries," MPRA Paper 51430, University Library of Munich, Germany.
    16. Mauricio Moura & Maurício José Serpa Barros de Moura & Rodrigo De Losso da Silveira Bueno & Maurício Sérgio Nunes Muritiba & Patricia Morilha Muritiba & Sergio Luiz do Amaral Moretti, 2014. "Market value analysis of entrepreneurs? microcredit and personal loans," E3 Journal of Business Management and Economics., E3 Journals, vol. 5(5), pages 120-130.
    17. Nawaz, Ahmad & Iqbal, Sana, 2015. "Does Social Performance Drives Corporate Governance Mechanism in MFIs? An Issue of Endogeneity," MPRA Paper 65312, University Library of Munich, Germany.
    18. Rachana Vishwakarma, 2017. "Women on Board and its Impact on Performance: Evidence from Microfinance Sector," Indian Journal of Corporate Governance, , vol. 10(1), pages 58-73, June.
    19. James R. Barth & Chen Lin & Clas Wihlborg (ed.), 2012. "Research Handbook on International Banking and Governance," Books, Edward Elgar Publishing, number 14045.
    20. Md. Ali Rasel & Sandar Win, 2020. "Microfinance governance: a systematic review and future research directions," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(7), pages 1811-1847, April.
    21. Syed Mohsin & Malik Fahim Bashir & Yasir Bin Tariq, 2018. "Outreach and Performance Analysis of Microfinance Banks in Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 10(3), pages 21-40, September.
    22. Inoue, Takeshi & Hamori, Shigeyuki, 2011. "Financial permeation as a role of microfinance : has microfinance actually been helpful to the poor?," IDE Discussion Papers 299, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    23. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    24. Karel Janda & Batbayar Turbat, 2013. "Determinants of the financial performance of microfinance institutions in Central Asia," Post-Communist Economies, Taylor & Francis Journals, vol. 25(4), pages 557-568, December.

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