The Relationship between corporate governance practices and performance of micro finance institutions in Kenya

Njora, Julius Nyiri
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Strathmore University
Corporate governance practices aim to enhance a firm`s long-term shareholders value through a process of accountability by managers. It provides a structure through which the objectives of a company are set, and the means of attaining those objectives and monitoring performance are determined. Despite the utilization of such practices by organizations, many have failed to actualize the set objectives. The aim of this study therefore was to establish the relationship between corporate governance practices and performance of micro-finance institutions in Kenya. The study was anchored on three theories: Resource dependency theory, Agency theory and Stakeholder theory. The study examined board characteristics which included board size, board independence, the ownership structure and CEO duality and how they affect the performance of micro-finance institutions in Kenya. Firm performance was measured using non-financial measures of performance through a balance scorecard. The study was done through a positivist philosophical view and adopted a descriptive survey research design. The study population was 45 micro-finance institutions registered with the central bank of Kenya and those who are members of Association of Microfinance Institutions in Kenya. Primary data was collected through self-administered questionnaires to the management staff and directors of the micro-finance institutions. A test for reliability was carried out using Cronbach’s alpha model. Both descriptive and inferential statistics were used to analyse the data and the findings presented in tables and charts. The study established that board size and board independence were significant in explaining the performance of micro-finance institutions in Kenya. The study concluded that a small board size enhances operational efficiency and decision making in an organization. The presence of executive directors in a board improves the accountability and prosperity of a board of directors. The study further recommended a small board size consisting of a maximum of 10 members and presence of executive directors to a maximum of 4 members. The study contributes to the current literature on corporate governance and the use of non-financial measures of performance in a firm. The key limitations of the study were the time constraints and the limitation of score as the study focused on a limited number of variables of corporate governance.
A Thesis submitted in partial fulfillment of the requirement for the Degree of Master of Commerce at Strathmore University
Corporate governance practices, Micro-finance institutions_Kenya, Resource dependency theory