CORPORATE GOVERNANCE AND TRIPLE BOTTOM LINE PERFORMANCE OF MICROFINANCE INSTITUTIONS IN KENYA
Abstract
Statement of the Problem: Corporate governance plays a critical role in the sustainability of Microfinance Institutions (MFIs), which contribute to poverty reduction and financial inclusion. However, recent failures and declining performance of MFIs in Kenya have raised concerns about their governance structures. Between 2022 and 2024, only four of fourteen licensed MFIs reported profits, with the sector recording a combined loss of Ksh. 3.5 billion in 2024.
Purpose of the Study: This study examined the effect of board diversity and board committees on the financial, social, and environmental performance of Microfinance Institutions in Kenya.
Methodology: The study adopted an explanatory research design with a pragmatist philosophical approach. The target population comprised all 14 licensed deposit-taking MFIs registered with the Central Bank of Kenya. Primary data were collected using structured questionnaires administered to senior management, while secondary data were obtained from audited financial reports and regulatory documents. Data analysis employed descriptive statistics, correlation analysis, and hierarchical multiple regression.
Results: The findings revealed that both board diversity and board committees have moderate, positive, and statistically significant effects on TBL performance. Board committees showed a correlation coefficient of r = 0.612 (p < 0.05), while board diversity showed r = 0.493 (p < 0.05). Regression analysis indicated that a unit increase in board diversity leads to 0.298 increase in TBL performance, explaining 58.8% of variance, while board committees contribute 0.338 increase, accounting for 60.4% of variance.
Conclusion: Corporate governance mechanisms, particularly board diversity and committee structures, significantly enhance MFIs' capacity to achieve integrated financial sustainability, social outreach, and environmental responsibility, thereby reducing agency costs and aligning institutional actions with stakeholder interests.
Recommendations: MFI boards should strengthen diversity and establish specialized committees. Policymakers should develop Kenya-specific governance frameworks for MFIs and integrate TBL performance indicators into regulatory supervision to promote sustainable performance across financial, social, and environmental dimensions.
Keywords: Corporate Governance, Triple Bottom Line, Performance, Microfinance Institutions, Kenya
References
Adams, M., & Jiang, W. (2017). Do Financial Experts on the Board Matter? An Empirical Test From the United Kingdom’s Non-Life Insurance Industry. Journal of Accounting, Auditing & Finance, 35(1), 168-195. https://doi.org/10.1177/0148558X17705201
Akram, F. and haq, M. A. u. (2022). Integrating agency and resource dependence theories to examine the impact of corporate governance and innovation on firm performance. Cogent Business &Amp; Management, 9(1). https://doi.org/10.1080/23311975.2022.2152538
BBVA Microfinance Foundation. (2023). 2023 social performance report. Fundación MicrofinanzasBBVA. https://www.fundacionmicrofinanzasbbva.org/informes/2023/wp-content/uploads/2024/06/2023-Social-Report.pdf
Bhatt, R. R. and Bhattacharya, S. (2015). Board structure and firm performance in indian it firms. Journal of Advances in Management Research, 12(3), 232-248. https://doi.org/10.1108/jamr-07-2014-0042
Central Bank of Kenya. (2023). Bank Supervision Annual Report 2023. https://www.centralbank.go.ke
Chairina, C., & Tjahjadi, B. (2023). Green governance and sustainability report quality: The moderating role of sustainability commitment in ASEAN countries. Economies, 11(1), 27. https://doi.org/10.3390/economies11010027
Cheserek, B. K. (2007). The determinants of bank failures: A survey of commercial banks in Kenya (Doctoral dissertation, University of NAIROBI).
Das, T. C., Bora, P. K., & Das, J. (2025). Corporate Sustainability, ESG, and the Triple Bottom Line: A Review of Key Challenges. International Review of Management and Marketing, 15(5), 345-355. https://doi.org/10.32479/irmm.19768
Dato, M. H., Mersland, R., & Mori, N. (2018). Board committees and performance in microfinance institutions: Evidence from Ethiopia. International journal of emerging markets, 13(2), 350-370. https://DOI:10.1108/IJoEM-08-2016-0216
De Villiers, C., Naiker, V., & Van Staden, C. J. (2011). The effect of board characteristics on firm environmental performance. Journal of Management, 37(6), 1636-1663. https://doi.org/10.1177/0149206311411506
Dibra, R. (2016). Corporate governance failure: The case of Enron and Parmalat. European Scientific Journal, 12(16). https://doi.org/10.19044/esj.2016.v12n16p283
Dixon-Fowler, H. R., Ellstrand, A. E., & Johnson, J. L. (2017). The Role of Board Environmental Committees in Corporate Environmental Performance. Journal of Business Ethics, 140, 423-438. https://doi.org/10.1007/s10551-015-2664-7
Elmagrhi, M. H., Ntim, C. G., Elamer, A. A., & Zhang, Q. (2019). A study of environmental policies and regulations, governance structures, and environmental performance: The role of female directors. Business strategy and the environment, 28(1), 206-220. https://DOI:10.1002/bse.2250
Financial sector regulators (2023). Kenya Financial Sector Stability Report (13). https://www.centralbank.go.ke
Gallego-Álvarez, I., & Rodriguez-Dominguez, L. (2023). Board of directors and environmental practices: the effect of board experience, culture, and tenure. Environment, Development and Sustainability, 1-26. https://DOI:10.1007/s10668-023-03937-z
García Martín, C. J., & Herrero, B. (2020). Do board characteristics affect environmental performance? A study of EU firms. Corporate Social Responsibility and Environmental Management, 27(1), 74-94. https://DOI:10.1002/csr.1775
Gupta, N., & Mirchandani, A. (2020). Corporate governance and performance of microfinance institutions: recent global evidences. Journal of Management and Governance, 24(2), 307-326. https://DOI:10.1007/s10997-018-9446-4
Hermes, N., & Hudon, M. (2019). Chapter 10. Determinants of the performance of microfinance institutions: A systematic review. In Contemporary Topics in Finance: A Collection of Literature Surveys (pp. 297-330). Hoboken, NJ: Wiley.
https://doi.org/10.1002/9781119565178.ch10
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2007) The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management Studies, 37, 235-256. https://doi.org/10.1111/1467-6486.00179
Hillman, A.J., & Dalziel, T. (2003) Boards of directors and firm performance: Inte-grating agency and resource dependence perspectives. Academy of Management Review, 28, 383-396. https://doi.org/10.5465/amr.2003.10196729
Hussain, M. D., & Ahmed, I. (2024). Governance and the double-bottom-line performance of microfinance institutions: evidence from Bangladesh. Journal of Islamic Accounting and Business Research, 14(6). https://doi.org/10.1108/JIABR-02-2021-0049
Imran, Z., & Shafique, O. (2022). Impact of Internal Corporate Governance Mechanism on Social Performance of Microfinance Institutions in Pakistan. Journal of Accounting and Finance in Emerging Economies, 8(1), 59-74. http://doi.org/10.26710/jafee.v8i1.2186
Jackling, B., & Johl, S. (2009). Board structure and firm performance: Evidence from India's top companies. Corporate Governance: An International Review, 17(4), 492-509. https://doi.org/10.1111/j.1467-8683.2009.00760.x
Kalsie, A., & Shrivastav, S. M. (2016). Analysis of board size and firm performance: evidence from NSE companies using panel data approach. Indian Journal of CorporateGovernance,9(2), 148-172. https://DOI:10.1177/0974686216666456
Madhani, P. M. (2017). Diverse roles of corporate board: Review of various corporate governance theories. The IUP Journal of Corporate Governance, 16(2), 7-28.
Mahmood, Z., Kouser, R., Ali, W., Ahmad, Z., & Salman, T. (2018). Does corporate governance affect sustainability disclosure? A mixed methods study. Sustainability, 10(1), 207. https://doi.org/10.3390/su10010207
Menicucci, E., & Paolucci, G. (2023). ESG dimensions and bank performance: an empirical investigation in Italy. Corporate Governance: The International Journal of Business in Society, 23(3), 563-586.
http://creativecommons.org/licences/by/4.0/legalcode
Mori, N. (2015). Directors' diversity and board performance: Evidence from East African microfinance institutions. Journal of African Business, 15(2), 100-113. https://DOI:10.1080/15228916.2014.920654
Nursimloo, S., Ramdhony, D., & Mooneeapen, O. (2020). Influence of board characteristics on TBL reporting. Corporate Governance, 20, 765-750. https://DOI:10.1108/CG-06-2019-0187
Ochego, E., Omagwa, J., & Muathe, S. (2019). Corporate Governance, Financial Performance and Firm Value; Empirical Evidence from Commercial Banks in Kenya. International Journal of Finance & Banking Studies (2147-4486), 8(4), 41-48. https://doi.org/10.20525/ijfbs.v8i4.608
OECD (2023), G20/OECD Principles of Corporate Governance 2023, OECD Publishing, Paris, https://doi.org/10.1787/ed750b30-en.
Ouma, C. A., & Webi, R. Y. (2017). Effect of age diversity of board members on performance of non-governmental organizations in Kenya. international journal of novel research in marketing management and economics, 4(2), pp: (101-123. www.noveltyjournals.com
Pfeffer, J., & Salancik, G. (2015). External control of organizations: Resource dependence perspective. In Organizational behavior 2 (pp. 355-370). Routledge.
Pucheta-Martínez, M. C., & Gallego-Álvarez, I. (2020). Do board characteristics drive firm performance? An international perspective. Review of Managerial Science, 14(6), 1251-1297. https://DOI:10.1007/s11846-019-00330-x
Rasel, (2021), Corporate Governance and Triple Bottom Line Performance of Microfinance Institutions: Empirical Evidence from South Asia (Doctoral Dissertation). University of Bedfordshire.
Sarpong‐Danquah, B., Adusei, M., & Magnus Frimpong, J. (2023). Effect of board gender diversity on the financial performance of microfinance institutions: Does judicial efficiency matter? Annals of Public and Cooperative Economics, 94(2), 495-518. https://doi.org/10.1111/apce.12396
Simo, C., Tchakoute Tchuigoua, H., & Faugere, C. (2022). The Determinants of Micro Finance Institutions’ Decision to Receive a Social Rating: An Institutional and Resource-Dependence Perspective. Sustainability, 14(19), 11986. https://doi.org/10.3390/su141911986
Tarchouna, A., Jarraya, B., & Bouri, A. (2017). How to explain non-performing loans by many corporate governance variables simultaneously? A corporate governance index is built to US commercial banks. Research in International Business and Finance, 42, 645–657. https://doi.org/10.1016/j.ribaf.2017.07.008
Terjesen, S., Couto, E.B. and Francisco, P.M. (2016). Does the presence of independent and female directors’ impact firm performance? A multi-country study of board diversity. Journal of Management and Governance, 20, 447-483. https://doi.org/10.1007/s10997-014-9307-8
Tjahjadi, B., Soewarno, N., & Mustikaningtyas, F. (2021). Good corporate governance and corporate sustainability performance in Indonesia: A triple bottom line approach. Heliyon,7 (3). https://doi.org/10.1016/j.heliyon.2021.e06453
Waweru, N. M., & Prot, N. P. (2018). Corporate Governance Compliance and Accrual Earnings Management in Eastern Africa: Evidence from Kenya and Tanzania. Managerial Auditing Journal, 33, 171-191. https://doi.org/10.1108/MAJ-09-2016-1438
Younas, A. (2022). Review of corporate governance theories. European Journal of Business and Management Research, 79-83. https://DOI:10.24018/ejbmr.2022.7.6.1668
