There have been various forms of regulatory intervention by the central banks of countries to streamline microfinance activities and ensure effective corporate governance of microfinance institutions (MFIs). Considering the limited amount of research in this area and the need to ensure regulatory effectiveness, the purpose of this paper is to evaluate the impact of regulatory provisions on the attainment of effective corporate governance in MFIs in Nigeria and Zambia.
Interviews were conducted with regulators at the Central Bank of Nigeria and the Bank of Zambia, directors and executive management officers of MFIs and executives of apex associations of MFIs in both countries.
The paper presents five significant findings which are that the regulations have enabled negative outcomes in areas such as board composition, the ownership requirements in the regulations have resulted in differing governance implications, the certification requirements for board members are problematic in practice, supervision by regulators is ineffective and has impacts on risk management and the principle of consultation with stakeholders is inadequate in both countries.
Regulatory provisions must be robust and fit for purpose to ensure the microfinance initiative in emerging economies achieves the objectives of enhancing financial inclusion and economic development of the society.
The paper addresses an area of limited research and provides empirical findings in relation to regulation and corporate governance in developing economies, which would help to ensure regulatory effectiveness.
