Corporate Governance Practices in Micro-Finance Institutions in Nairobi, Kenya

Abstract

Governance is about achieving corporate goals. For most MFIs, dual goals exist particularly the social and economic perspectives. In Kenya, good governance involves effective guidance of the board of MFIs to manage the management team by implementing the regulatory framework of the Microfinance Act of 2006 and developing systems and procedures. The regulators in Kenya have provided a clear directive which focuses on governance and management by introducing strict licensing and minimum capital requirements; capital adequacy rules; fiduciary responsibilities and standards regarding owners, directors and executive managers of MFIs; providing guidelines on risk management and related policies. Despite the efforts of the regulators, many of the MFIs have given very little attention to corporate governance and risk management, which affects their entire performance. MFIs face problems related with governance, emanating from internal and external factors that threaten their operational and financial sustainability. This paper established that most stakeholders are outsiders. This paper recommends that a competent and motivated board together with institutional capacity is critical to advancing CG in the microfinance sector. There is need to investigate expansion of the scope to cover new areas and clients considering MFIs already control a segment of the money market considered risky by main stream banks and the efforts of these MFIs in adopting best CG practices. Further investigation on how legal frameworks can be adapted so as to allow well-performing MFIs to mobilize savings while integrating governance systems and understanding their impact within the financial sector may be conducted