Are Ghanaian MFIs’ Performance Associated with Corporate Governance?

Abstract

Purpose – The purpose of this paper is to determine whether in Ghana, corporate governance, outreach to clients, reduced dependence on subsidies and use of modern technology (together called corporate governance plus) are associated with the performance of rural and community banks (RCBs), which are microfinance institutions (MFI), in the context of newly adopted codes of conduct and regulations, ownership rules and quality of management.

Design/methodology/approach – A total of 30 randomly sampled RCBs were categorized into four groups based on analysis of several dimensions of financial performance. Next, RCBs were again categorized into four groups based on their corporate governance plus. A chi‐squared test of independence between the two groupings was performed.

Findings – The authors found no association between RCBs' categories based on corporate governance plus and their categories based on financial performance.

Practical implication – To enhance performance, corporate governance plus must impact financial performance as documented by OECD. Laws and codes of conduct recently designed to guide the conduct of business should be allowed to work. The restriction on individual ownership of RCBs to 30 percent should be relaxed. And RCBs should pay attention to developing the competencies of their boards and senior management.

Originality/value – This is the first formal test of the association between state of corporate governance plus and financial performance of microfinance institutions in Ghana.