The effect of corporate governance practices on the financial performance of deposit taking Microfinance institutions in Kenya

Abstract

MFIs have been providing financial services to their members with little competition from other players in the financial market. However, the entry of other players in the financial market, targeting the same clientele that had been traditionally considered as the territory of MFIs and introducing services and products especially tailor-made to out- compete MFI's products, coupled with the liberalization of the financial market and the economy at large, all have strained the performance of the MFIs. In light of this, many MFIs have implemented corporate governance measures and practices in an effort to improve their performance and make them more relevant in their business and better able to compete in the financial markets in which they operate. This study sought to analyze the effect of the adoption of these corporate governance practices on the financial performance of deposit taking MFIs. The research was based on deposit taking MFIs in Kenya. The target population was the 6 MFIs registered with the Central Bank of Kenya as at 30 June, 2011. A survey of 6 respondents drawn from the 6 MFIs registered with the CBK was taken for the study. Data was collected using a structured questionnaire method. The responses from cross-functional sample group were analyzed using descriptive statistical techniques in form of frequency distribution tables, percentages, paretto, and computer packages. The expected output was to establish whether the adoption of corporate governance practices has any relationship with the financial performance MFIs, and therefore come up with recommendations that will help in the enforcement of these practices by the relevant regulatory authorities. The findings were that corporate governance influences the financial performance of the deposit taking MFIs. Transparency and disclosure measures were found to have a greater influence on the financial performance of the deposit taking MFIs.