THE EFFECT OF INTERNAL CORPORATE GOVERNANCE MECHANISMS ON THE PERFORMANCE OF MICROFINANCE INSTITUTIONS. CASE STUDY: BAFUT CORPORATIVE CREDIT UNION BUEA

ABSTRACT

This study examines empirically the effect of internal corporate governance mechanisms on the change in financial performance in MFIs. Despite the substantial theoretical development in the field of internal corporate governance over the past decades, the gap between theory and practical still needs to be reconciled, many MFIs close down due to the problem of governance. It has been noticed that a significant relationship exists between management control and economic profitability and the composition of the Board of Directors, its structure and procedures on financial profitability. Our work constitutes an attempt to find out the effect that internal corporate governance mechanisms has on the financial performance of microfinance institutions. The result of our analyses shows that, the implementation of a sound management control positively and significantly affects the economic profitability of MFIs, it has a high correlation coefficient. It also shows that the financial profitability of microfinance institutions is positively affected by the procedures and composition of the governing board of directors. We strongly recommend that microfinance institutions should increase the number of their board committees so that they can be able to effectively take part in control, education of members and the sensitization of the general public. The board should also communicate to members and shareholders how the resources of the institution have been used.

Key words: internal corporate governance, microfinance, financial Performance, board composition