Corporate Governance Practice and Financial Performance of Microfinance Institutions: Contemporary Literature

The main purpose of this paper is to review systematically both theoretical and empirical literature about the relationship between corporate governance variables and the performance of microfinance institutions. The theoretical reviews were: agency theory stakeholders’ theory, resource dependency theory, stewardship theory, and social contract theory which deal with corporate governance mechanism and their effect on the performance of the firm. Empirical studies carried out in different countries at different times together with different findings were reviewed to compare the effect of corporate governance mechanisms on the performance of microfinance institutions and to establish areas of gaps for further studies. Board characteristics which include size, education, meeting frequency, board composition, and board independence, and their effect on the financial performance of microfinance institutions were discussed. The findings of different scholars show a lack of consistency on the effect of corporate governance variables on the financial performance of Microfinance Institutions so further investigation is required from potential scholars. Finally, theoretical, measurement and methodological drawbacks of previous studies were identified, and significant recommendations were forwarded for future studies in this area.