Effect of Corporate Governance on Performance of ‎Microfinance Banks in Nigeria‎

Abstract

Good corporate governance is perceived as a key component of sustainability for Microfinance ‎Banks (MFBs) as it is assumed to help them achieve their social and financial objectives. This study ‎examined the effect of corporate governance on the performance of MFBs in Nigeria. Corporate ‎governance was proxied by audit committees, board size and composition while Return on Equity ‎‎(ROE) was used as the measure of financial performance. Twelve MFBs were randomly selected ‎from South West, Nigeria. Secondary data was obtained from the annually published reports of the ‎selected licensed microfinance banks in Nigeria between ten years period of 2011 and 2020. Data ‎were analyzed using regression and correlation techniques.‎ The results demonstrated that board size correlates favourably and significantly with MFBs ‎performance, implying that larger boards improve bank performance. Board composition exhibited ‎a strong positive relationship with MFBs’ performance. Furthermore, audit committees correlate ‎positively and significantly with MFBs’ performance, demonstrating that audit committees are ‎important components of corporate governance. Finally, the study found that corporate governance ‎proxies (audit committees, board size, and composition) have a positive and significant effect on ‎MFB's performance in Nigeria.‎ Consequentially, this study suggests that an operational audit committee be established if MFBs’ ‎credibility, efficiency, competitiveness, and sustainability are to be ensured. MFBs should also ‎maintain a completely unbiased board composition to ensure optimal achievement of goals and ‎long-term profit maximization.‎

What Factors Drive the Microfinance Banks’ Profitability in Nigeria?

“…There is a growing consensus among economists and policymakers that the microfinance banks (MFBs) are crucial for promoting the economic growth and achieving inclusive development in developing nations (Ademola, Kazeem & Ajayi 2022;Ochonogor, 2020;Akinadewo, Akinkoye & Olasanmi 2020). This is true as MFBs provide financial services to low-income individuals who lack access to financial services offered by traditional banks due to high transaction costs, high risk associated with providing the credit to them, and inadequate assets as credit collateral (Ademola, Adegboyegun, Kazeem & Akanbi, 2020).…”