GOVERNANCE AND PERFORMANCE OF MICROFINANCE INSTITUTIONS IN MEDITERRANEAN COUNTRIES

Ben Soltane Bassem

doi:10.3846/1611-1699.2009.10.31-43

Abstract

This paper examines empirically the relation between governance mechanisms and the performance of Euro‐Mediterranean microfinance institutions (MFIs) in terms of outreach and sustainability. Specifically, we found that performance‐based compensation of managers is not associated with better performance of MFIs. The results identify trade‐offs between MFIs outreach and sustainability depending on larger board size, and on higher proportion of unaffiliated directors. Moreover, the study shows that the more women there are on the board the better the performance, and reveals that external governance mechanisms help MFIs to achieve better financial performance. This study also allows us to distinguish other factors leading to better sustainability such as Regulation, and the use of individual lending methodology. However, the MFIs, active as NGOs, seem to be more consistent with their social mission than with their financial performance.

Highlights

Microfinance is the provision of financial and nonfinancial services to the poor who are excluded from financial /credit markets because they are considered unbankable
While exploiting a recently conducted survey by the author in order to study the efficiency of MFIs in Mediterranean countries, the annual financial reports of the microfinance institutions, and other relevant information collected from Microfinance Information Exchange (MIX), this paper aims to investigate the link between governance and Euro-Mediterranean MFIs’ performance in terms of outreach and sustainability since governance guides an institution in fulfilling its corporate mission and protects the institutions assets over time
The internal auditor reporting to the board is the way to reach board governance with information relative to internal firm governance, the results indicate that the internal board editor seems not to have any significant influence on MFIs performance

Summary

Introduction

Microfinance is the provision of financial and nonfinancial services to the poor who are excluded from financial /credit markets because they are considered unbankable. Microfinance institutions have evolved primarily as a consequence of the efforts individuals and assistance agencies have committed to the idea of ensuring that the poor people have access to some form of credit. The shrinking resources base for donor funds to support the increasing demand for grants and soft loans implies that MFIs will eventually have to support themselves (Ledgerwood 1999). Their sustainability will focus on governance structures within the industry. As Labie (2001) observes,

Objectives

Findings

Discussion

Conclusion