Governance and the double-bottom-line performance of microfinance institutions: evidence from Bangladesh

Mohammad Delwar Hussain and Iftekhar Ahmed

Journal of Islamic Accounting and Business Research, 2023, vol. 15, issue 2, 367-383

Abstract: Purpose - This study aims to examine the impact of governance on the double-bottom-line performance of microfinance institutions (MFIs) in Bangladesh. Design/methodology/approach - This study relies on three dimensions of corporate governance (CG) practices, that is, functions of the board of directors (BoD), top-level management activities and external governance mechanisms. This study uses panel data econometrics, particularly pooled OLS, fixed effects and two-stage system generalized method of moments to deal with potential endogeneity concerns. The panel data set covers 1,200 MFI year observations from Bangladesh for the period between 2005 and 2019. Findings - The findings show that the presence of stakeholders on boards plays a critical role in MFIs. The dual goals of MFIs are influenced by board size, board independence and CEO duality. Internal management activities, risk perceptions and external governance also impact MFIs’ performance. Women on board have an inverse association with outreach. The activities of female managers have a significant impact on depth of outreach. Research limitations/implications - Like many others, this study also admits the data constraint issues in microfinance research. CG data for MFI are mostly unavailable in the public domain; therefore, this study must rely on third-party data sources. This study only includes MFIs that has data for all variables of interest. Practical implications - Governance attributes in hybrid organizations are constituted differently. To warrant multistakeholder engagement, there is a need to develop a distinctive governance manual for hybrid organizations like MFIs. Social implications - This study proposes adopting a Social Director on the BoD to ensure the scope of outreach depth, given the importance of social goals in MFIs. Originality/value - This study contributes to the ongoing debate on microfinance governance, addresses the issue based on different theoretical aspects using a country-specific data set and uses dynamic panel models to deal with potential endogeneity concerns.

Keywords: Corporate governance; Financial sustainability; Microfinance institutions; Social outreach; G21; G30; G34 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jiabrp:jiabr-02-2021-0049

DOI: 10.1108/JIABR-02-2021-0049

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