THE EFFECT OF CORPORATE GOVERNANCE ON THE PERFORMANCE OF MICROFINANCE INSTITUTIONS

Abstract

The research is centered on Assessing the effect of Corporate Governance on the performance of Selected MFIs. The researcher used explanatory research design based on quantitative approach in order to get better analysis of the study. In addition, correlation and regression analysis also computed through SPSS result. From the study findings prove that; Based on the statistics the financial performance of sample Microfinance, board size ranges from 5 to 10 members. This indicates that almost all sample MFIs have complied the regulation of NBE which need to have not less than 7 board members. With regards to educational background, the majority we can say 90 percent reveals that the board members have BA degree and above up to PhD. This show that, the board members have better educational background adequately understand financial reports and other company reports in order to know or better still make appropriate decisions that would help the institution grows. 83.3% characterized by the presence of competence directors that majority of the directors have business related educational background. The study shows around 63.3% board members have seven years and above experience in financial sector. This also contributes for better improvement of MFIs financial performance. So, effective implementation and strengthening the internal control system is very essential for MFIs growth and sustainability. The correlation analysis indicates that board size, educational back ground, Frequency of board meeting, and board experience in the sector are positively and significantly correlated with Return on Asset. However, Board sub-committee size is negatively correlated with return on asset. From the model summary above indicates that 88.3% of variation in the return on equity is explained by variations in corporate governance variables indictors. Four of the hypothesis is accepted and one was rejected and the null hypothesis is validated. The researcher recommended that, effective implementation and strengthening the internal control system is very essential for MFIs growth and sustainability.