Does Corporate Governance Impact the Financial Performance of Microfinance Institutions (MFIs)? A Case Study in Sri Lanka

Abstract

This study examines the relationship between corporate governance and financial performance of Sri Lankan Microfinance Institutions (MFIs). The OLS regression, fixed effect and random effect models are used to analysis an unbalanced panel data comprising 300 firm-year observations over the period 2007 to 2012. We fine that financial performance of Sri Lankan MFIs improves when MFIs have female CEO, female chair, CEO/chairman duality, independent directors and client representation on the board rather than donor directors on the board. The financial performance may reduce with the higher number of female director representation. We also find no significant relation between international directors on the board, internal audit and firm performance of MFIs in Sri Lanka. This research provides insight for the policy-makers regarding corporate governance in Sri Lankan MFIs.