Board Committees and Financial Performance of Microfinance Institutions in Kenya
DOI:
https://doi.org/10.47604/ijfa.3673Keywords:
Board Committees, Financial Performance, Microfinance InstitutionsAbstract
Purpose: The financial performance of microfinance institutions is a significant aspect in assessing the viability and success of MFIs, with Return on Assets as a measure of the efficiency of these institutions. This research sought to evaluate the effect of board committees on the financial performance of MFIs in Kenya, formulated based on resource dependence theory.
Methodology: The study used a descriptive research design and a census technique in which all the 23 registered MFIs in Kenya were analyzed. Secondary data was collected from annual audited financial statements, annual reports, and institutional and regulatory documents from 2019 to 2023 using a secondary data collection sheet. The analysis entailed a panel regression analysis to find the correlation between board committees and financial performance. Panel regression results indicated that board committees have a significant positive effect on the financial performance of MFIs in Kenya.
Findings: The findings revealed that 55.10% of financial performance among Kenyan MFIs can be explained by board committees.
Unique Contribution to Theory, Practice and Policy: The study recommended that the CBK, in collaboration with the Association of Microfinance Institutions, continue strengthening board committees by enforcing compliance audits and governance training for directors. Policymakers should introduce governance rating systems for MFIs to benchmark board effectiveness and encourage adherence to best practices. The government and AMFI should support capacity-building programs that train MFI board members on ethical leadership, digital transformation, and risk management. Finally, board policies should be aligned with international best practices, such as the OECD Principles of Corporate Governance and the Basel Committee’s guidelines on banking supervision, to ensure that Kenyan MFIs remain competitive and sustainable.
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