Impact of corporate governance onsustainability and outreach of microfinance institutions: Empirical evidence from India

The study of corporate governance is gaining momentum as corporate governance compliance has been made mandatory. Even though made mandatorythe number of corporate governance issues are on the rise. The high profile scandals in Enron, World Com and also the Satyam scandal, Tata Mistry issues in India have also stimulated policy makers, investors, academicians and other stakeholders Innumerable studies have investigated the relationship between corporate governance factors and performance (Black 2006; Chhaochharia and Grinstein, 2007; Bennett and Robson, 2004), Spanos (2005) argues that corporate governance has significant implications for the growth prospects of an economy. In spite of the numerous studies the results rather remain inconclusive. Good governance is of crucial importance. The Centre for the Study of Financial Innovations (CSFI) 2008 and 2009 surveys of the commercial micro finance industry warned that poor corporate governance poses a serious risk for microfinance organizations (Augustine, 2012). The importance of good governance for MFIs has also been confirmed by the Microfinance Banana Skins survey (CSFI, 2011, 2012). In addition, the 2012 Microfinance Banana Skins survey shows that the top concern of investors in microfinance is the quality of their corporate governance of MFIs. The variables considered in the model are measures of sustainability and outreach measured by OSS and number of active borrowers and corporate governance characteristics which include number of independent directors, board size and the presence of women on board. The model used for analysis also included certain firm specific variables. These firm specific variables are total asset and gross loan portfolio which depicts the volume of business. To investigate the impact of corporate governance structure on the sustainability and outreach of MFIs, the study used a panel data OLS regression model for a sample of top 15 microfinance institutions quoted in the Bombay Stock Exchange. The results of the panel data analysis show that the CG factors board size has a significant negative relation whereas gender diversity shows significant positive relation with sustainability and outreach of MFIs.