Boards in Microfinance Institutions: How Do Stakeholders Matter

Abstract

Microbanks provide financial services to low income people. Governance of these organizations is important for them to efficiently reach poor people and survive financially. Board is one among several governance mechanisms. This paper empirically analyses the influence of stakeholders who sit on boards, on board structure and performance of microbanks. Based on agency, resource dependence and stakeholder theories, we analyze four types of stakeholders; donors, customers, employees and creditors. Results show that stakeholders are important and have different influences in microbanks. We find donors to be strict in monitoring by advocating for small boards and non duality. Employees and customers are more of resource providers and we find them to be associated with large boards. We further evidence that stakeholders are more interested in microbanks ability to cover for its operation costs. Study implications and areas for future research are further discussed.

Keywords: Microbanks, stakeholders, board structure, performance

JEL Classification: G21, G30