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Outreach and profitability of microfinance institutions: the role of governance

Outreach and profitability of microfinance institutions: the role of governance 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Outreach and profitability of microfinance institutions: the role of governance

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Publisher
Emerald Publishing
Copyright
Copyright © 2008 Emerald Group Publishing Limited. All rights reserved.
ISSN
0144-3585
DOI
10.1108/01443580810887797
Publisher site
See Article on Publisher Site

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.

Journal

Journal of Economic StudiesEmerald Publishing

Published: Aug 1, 2008

Keywords: Corporate governance; Finance; Performance management; Ghana

References