5th International Ibn Khaldun Symposium

Governance Structure of Microfinance Institutions: A Comparison of Models and Its Implication on Social Impact and Poverty Reduction


Md Nazim Uddin, Hamdino Hamdan, Nor Azizan Che Embi, Salina Bt. Kassim, Norma Bt Md Saad

Last modified: 28-04-2019

Abstract (400-500 words)


The purpose of this paper is to compare three different MFI models, namely microfinance banks (MFB), Microcredit programmes (MCP) and rural development schemes (RDS), by focusing on their governance structures, and subsequently analyse their implications on social impact and poverty reduction of the MFIs. Three MFIs, one from each model, will be considered in studying Bangladesh as a case study seeing it is considered a pioneer in micro-financing underprivileged communities towards improving overall entrepreneurial capacity. The objective of this study is to determine the relationship between governance structures on social impact and poverty reduction of microfinance institutions (MFIs). In terms of methodology, the study relies on Porter’s (1979) Competitive Strategy Theory based in the concept that five forces determine the competitive intensity and attractiveness of a market or a business entity, its ability to serve its customers and make profits. The study relies on secondary data mainly collected from the annual reports of the three MFIs and the Microcredit Regulatory Authority (MRA) report. This study aims to contribute towards better governance practices of the MFIs given its strong implications on social responsibility, accountability, transparency, financial performance, increased social impact and poverty reduction of the MFIs. Findings of this study provide essential inputs on the way forward for the evolution of microfinance, as framed by the global development discourse and subsequent public policy choices. Overall, the study shows that only a limited number of variables influence the social impact and poverty reduction of an MFI, the study’s limitation lies in the studied investment fund which invests in expanding and mature MFI’s. As such, results of this research can only be generalised to expanding and mature MFI’s. The governance structure recommended in industry guidelines and which are studied here are often not relevant in terms of social impact and the role of poverty reducing MFIs. The approach to microfinance governance should be broadened by providing greater focus to stakeholders and the decision-making process in an MFI. Better social responsibility and poverty reduction of the MFIs contribute positively to financial inclusion through poverty alleviation, empowerment of the poor and better financial access, leading to sustainable economic growth. an MFI. Better social responsibility and poverty reduction of the MFIs contribute positively to financial inclusion through poverty alleviation, empowerment of the poor and better financial access, leading to sustainable economic growth.

 


Keywords


governance structure, microfinance, social impact, microfinance banks, rural development scheme, social responsibility and poverty reduction.