The role of boards of directors of family-owned microfinance institutions

Abstract

PurposeThe purpose of this paper is to investigate the composition and role of a board of directors in a family-owned microfinance institution (FO-MFI) in Tanzania.Design/methodology/approachThe paper is based on a longitudinal analysis of the board practices based on boardroom observations for the period between 2012 and 2015. The study further collected and analyzed qualitative data from interviews with board members, management, and institution staff.FindingsThe findings indicate that even though external board members were appointed as a result of their diverse expertise and skills, their personal relationships with shareholders, life-cycle stage of the institution, and the nature of the industry influenced their selection. It was also found that the board played more of the service role in strategy formulation, resource mobilization, and networking, and, through that, members were also able to exercise control of the firm.Research limitations/implicationsBecause this paper is based on a qualitative approach, it suffers from the challenge of generalization. However, numerous research issues have been raised that require further investigation.Originality/valueThis study contributes to the governance literature by showing what really happens in a family-owned firm, as it is based on a unique data set drawn from the boardroom of the FO-MFI in a context of a developing economy. This context is unique, given that most private MFIs operating as family enterprises do not have a professional board of directors. The study shows how the board contributes to a strategic direction of the firm in which the management and ownership are not separated, and the first generation is running the firm.