Performance and Governance in Microfinance Institutions

Posted: 23 Sep 2010 Last revised: 17 Dec 2010

See all articles by Roy Mersland

Roy Mersland

University of Agder

R. Øystein Strøm

OsloMet - Oslo Metropolitan University

Date Written: 2009


We examine the relationship between firm performance and corporate governance in microfinance institutions (MFI) using a self-constructed global dataset on MFIs collected from third-party rating agencies. Using random effects panel data estimations, we study the effects of board and CEO characteristics, firm ownership type, customer-firm relationship, and competition and regulation on an MFI’s financial performance and outreach to poor clients. We find that financial performance improves with local rather than international directors, an internal board auditor, and a female CEO. The number of credit clients increase with CEO/chairman duality. Outreach is lower in the case of lending to individuals than in the case of group lending. We find no difference between non-profit organisations and shareholder firms in financial performance and outreach, and we find that bank regulation has no effect. The results underline the need for an industry specific approach to MFI governance.

Keywords: Microfinance, governance, performance, boards, ownership

JEL Classification: G30, G32, J23

Suggested Citation

Mersland, Roy and Strøm, Reidar Øystein, Performance and Governance in Microfinance Institutions (2009). Journal of Banking and Finance, Vol. 33, No. 4, 2009. Available at SSRN:

Roy Mersland (Contact Author)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604


Reidar Øystein Strøm

OsloMet - Oslo Metropolitan University ( email )

P.O. Box 4
Oslo, 0130
+47 97968500 (Phone)

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