Internal governance mechanisms and the performance of decentralized financial systems in Niger

Abstract

PurposeThe purpose of this paper is to study the effect of internal governance mechanisms on the financial and social performance of Niger’s decentralized financial systems (DFS).Design/methodology/approachThis paper investigated the impact of the board size and the CEO/chairman duality on financial performance and sustainability, respectively, measured by the return on assets (ROA) and operational self-sufficiency on one side and social performance measured by the size of loans granted and the percentage of female borrowers on the other side.FindingsThe results show that board size positively and significantly affects the ROA. The author also concludes that the duality of decision and control functions promotes the financial viability of the DFS. Regarding the impact of internal governance on social performance, the author finds that board size positively and significantly affects loan size.Research limitations/implicationsThis study focuses on Niger’s 13 largest DFSs. However, an analysis that also includes smaller firms may show different results.Practical implicationsA board size of between 5 and 15 members is recommended. This would help to incorporate key skills and the active involvement of all members.Originality/valueThis research highlights the importance of including internal governance mechanisms, underscores an interesting problem and answers questions raised in the existing literature by invalidating or confirming the results that have been obtained thus far. As the players in the microfinance sector recognize that sound governance is an important factor for a successful outcome in any microfinance institution objective, the paper helps shed some light on the situation of DFS in Niger.