Effect of governance structure on the outreach and sustainability of microfinance institutions in Bangladesh

Abstract

This research identifies the effect of governance structure on outreach and sustainability of microfinance institutions (MFIs) in Bangladesh. One of the essential aspects of MFIs is ensuring that the governance structure is managed effectively. This study finds the effect of governance structure, outreach, and sustainability on MFIs in Bangladesh. The effective governance design for MFI has the potential to deliver sustainable institutes, in turn providing a staggering boost to Bangladesh’s economy. This study makes several contributions to the existing knowledge of corporate governance and MFIs in outreach and sustainability. First, it provides evidence from Bangladesh of what aspects of governance structure need to be strengthened and how much effect each component has on MFIs outreach and sustainability. Second, the study identifies the importance of considering differences in institutional values, culture, and the environment and points to the risk of applying normative assertions of governance structure in MFIs in Bangladesh. Finally, in contrast to extant studies in the microfinance sector, this study accommodates governance structure, outreach and sustainability of MFIs in Bangladesh. The research approach is a quantitative research model. This research used empirical data. A panel data analysis approach and the random sampling technique are used. The population is 676 MFIs, and Grameen Bank of Bangladesh has a sample size of 42 institutions. Hypotheses are sourced from the Microfinance Information Exchange (MIX) database, and Microcredit Regulatory Authority (MRA), in Bangladesh. The sample period is 2009 to 2018 MFIs in Bangladesh. Fixed-effect, random-effect approaches, and generalised system method of moment (GMM) estimator approach. This study's results indicate that the association between current MFIs' performance is statistically significantly positive for sustainability and outreach variables across four categories of MFIs, suggesting that the governance structure relationship between MFIs should be examined dynamically. This demonstrates the importance of user experience as an independent variable in analysing existing governance structures and performance in the microfinance sector. Additionally, this research demonstrates that the standard of national governance has a statistically important positive effect on the sustainability and outreach of MFIs in Bangladesh. This robustness forms the groundwork for business and political policy changes that will dramatically increase the quality of life for Bangladesh's most impoverished lowest-income people and achieve SDGs. Additional study in other countries is essential to decide if this is a generalisable pattern or unique to Bangladesh. Finally, this study suggests that a regulatory and supervisory framework be introduced in Bangladesh to enhance the governance structure of MFIs. The sector requires a robust regulatory environment to improve its governance and administrative frameworks and expand the microfinance sector's outreach and sustainability opportunities.