INFLUENCE OF BOARD COMPOSITION ON THE FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS IN NAIROBI COUNTY

Abstract

The issue of corporate governance is still a debate across the world, with some emphasizing its role in their firm performance whereas others underplay its role in business. The purpose of the current study was to establish the influence that internal attributes of corporate governance have on the financial performance of microfinance institutions in Nairobi County. The specific objective of the study was to determine the influence of board composition on the financial performance of Microfinance Institutions in Nairobi County. The population of interest in the study was 351 board members, CEOs, and auditors in 25 MFIs in Nairobi County. Through the use of the Yamane formula, 187 respondents were sampled for the study to provide primary data. Primary data was collected through drop and pick methods of a questionnaire among the respondents, whereas secondary data was collected from financial newsletters and published financial statements among the 25 MFIs in Nairobi County. Data collected for the study was analyzed through descriptive analysis

including determination of frequencies, percentages, standard deviation, and mean. Correlation analysis and simple linear regression were conducted to establish the nature of the relationship between independent and dependent variables. The presentation was tabulated and narrated. The findings of the study revealed that board composition was associated with (β=0.552, t=3.080, and a p-value associated with it was 0.003). The study concluded that board composition had a positive and significant influence on the financial performance of MFIs in Nairobi County. The study recommended an appropriate number of board members that were financially manageable and optimal in decisions making. Besides, the study recommended a good mix of directors, both executive and non-executive, gender inclusiveness, and also a good mix of professionals and experienced members to ensure better financial performance of MFIs in Nairobi County.