Stakeholders on Board: Impact in Microfinance Sustainability and Social Outreach

Purpose: This study develops an applicable governance structure based on multi-theoretical approach with relevant factors by using Bangladesh as a case study for doing microfinance governance research by considering stakeholders participation on board and its impact on double bottom-line performances.

Design/Methodology/Approach: This research utilized longitudinal dataset (80 MFIs with 13 years and 1040 observations), with econometrics modelling to ascertain cause and effect relationship among the variables.

Findings: In view of ‘social-welfare & commercial logic’ it found MFI’s services to the poor are non-linearly influenced by profitability. If MFIs pursue high profit it tends to decrease the outreach. It contributes the existing literature by supporting stewardship theory that is CEO duality is important for developing countries. It develops new dimensions of variables considering MFIs age and size as a moderating role based on stakeholder and resource dependence theory which explain the positive and significant impact on dual performances.

Practical Implications: The findings of this study suggest that MFIs can appoint a social director, as the microfinance board of directors, have to make sure that the MFIs follow the social duty. This kind of directors has been representing the clients for the MFIs.

Originality/Value: This study has emphasized on governance indicators by considering board effectiveness which may be prejudiced by MFIs’ competency. Meanwhile, board associates should uphold stakeholders’ wellbeing rather than administrations. Ensuring microfinance governance there is a necessity for comprehensive superintendent principles.

Limitation/Implication: This study copes with limitations considering data availability, time constraint, geographical, or cultural differences, etc. In Bangladesh, there is no centralized data based on microfinance research. It is persistently afflicted by information limitations. So, future research may consider those approaches and develop the extent of MFIs’ outreach to the poor as well as institutional sustainability.