The purpose of this study is to explore the impact of MFI-level governance on microfinance institutions' (MFIs’) risk in Sub-Saharan Africa (SSA).
The study uses data from a sample of 151 MFIs operating in 21 SSA countries during 2005–2014. The Feasible Generalized Least Squares (FGLS) regression model is applied to investigate the relationship between MFI level governance mechanisms and risk.
The study provides new evidence that board characteristics have differential effects on for-profit (FP) and not-for-profit (NFP) MFI risk. Board independence reduces credit risk of NFP MFIs. Foreign director presence increases MFI failure risk. Furthermore, greater female director representation reduces (increases) FP (NFP) financial risk whereas female CEOs are associated with higher (lower) FP (NFP) financial risk.
The paper contributes to existing literature on microfinance governance and risk, by exploring the impact of governance on MFI risk based on MFIs profit orientation. In addition, the study uses three different risk measures unlike previous microfinance studies.
