What Explains Governance Structure in Non-profit and For-profit Microfinance Institutions

Understanding the attributes of governance mechanisms in MFIs
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This paper focuses on the interconnections among governance mechanisms. It focuses on board and CEO characteristics including board size, CEO-chairman duality, presence of international directors, and presence of a female CEO. The paper seeks to explain their occurrence from theories of board and CEO determination.

The study examines data from 290 MFIs in 61 countries using logit regressions. Findings include:

  • Board and CEO characteristics are substitutes and complements in the formation of board composition and size;
  • External governance mechanisms are important in understanding the choice of board and CEO characteristics;
  • MFI's ownership type and international initiation favour smaller board and international directors;
  • Outreach performance is more important for the associations to board and CEO characteristics than financial performance;
  • Relationships between variables and board size and composition demonstrate consistency;
  • When the variable is negatively associated with board size, it is positively related to international directors and female CEO.

An MFI should balance its board in several dimensions. It should find a balance between different board and CEO characteristics, and, this internal balance should address the needs existing among external governance mechanisms and the chosen customer segment.

About this Publication

By Mersland, R. & Strom, R.