Corporate governance practices in micro-finance institutions in Nairobi, Kenya

Abstract

Governance is about achieving corporate goals. For most MFIs, dual goals exist i.e. the social and economic perspectives. Good governance involves effective guidance of the board of MFIs to manage the management team by implementing the regulatory framework of the Micro-finance Act of 2006 and developing systems and procedures. The regulators in Kenya have provided a clear directive which focuses on governance and management by introducing strict licensing and minimum capital requirements; capital adequacy rules; fiduciary responsibilities and standards regarding owners, directors and executive managers of MFIs; providing guidelines on risk management and related policies. Despite the efforts of the regulators, many of the MFIs have given very little attention to corporate governance and risk management, which affects their entire performance. MFIs face problems related with governance, emanating from internal and external factors that threaten their operational and financial sustainability. This study established that most stakeholders are outsiders. This study recommends that a competent and motivated board together with institutional capacity is critical to advancing CG in the micro-finance sector.