The effects of governance on institutional sustainability and outreach of the poor in Microfinance Institutions (MFIs) in Bangladesh

Microfinance is the only financial sector where the stakeholders can acquire double benefits, sustainability as well as poverty reduction. Microfinance practitioners claim that this dual mission is absent due to the lack of governance practices within microfinance institutions (MFIs). Therefore, the purpose of this study is to examine the effects of governance on double bottom-line performances of MFIs in terms of institutional sustainably as well as outreach out of the poor. This study concentrates on data from a frontier market economic country. Thus, it uses a database of 80 microfinance institutions with 10 observations years, operating in Bangladesh. The research framework considers a multi-theoretical approach, which includes the economic-based agency theory as well as three management-based theories of stewardship, stakeholder, and resource dependence theories. It applies a quantitative approach to incorporate the results. The descriptive statistical analysis tool is applied for identifying the individual variables‘ outcomes. The panel data regression model with pooled OLS, fixed effects, and random effects GLS estimation techniques are applied for classifying inferential statistical results for within and between the variables. The results indicate that the average board size in Bangladeshi MFIs is eight persons and it has significant positive effects on institutional sustainability, with conversely, negative effects on outreach performance. The CEO duality has significant positive effects on institutional sustainably and the depth of outreach, while demonstrating the opposite for the breadth of outreach. This result supports the stewardship theory, but not the economic-based agency theory. The stakeholder participation on board has mixed results; however, it found a similar relationship from past studies.