Governance Mechanisms, Social Performance Disclosure and Performance in Microfinance: Does Legal Status Matter?

In this paper we examine diverse governance mechanisms implemented by microfinance institutions, as well as their relationships with both social and financial performance, using a database obtained from the MIX, consisting of MFIs reporting data both on financial and social performance. We find that some governance mechanisms are significantly different among MFIs depending on their legal status. MFIs with NGO status have more diversity in their boards, adhere more to fair practices related to their human resources, and pay more attention to training in social performance management. Furthermore, we find that NGOs perform better at a social level (serve more clients; reach more poor clients; a large fraction of their borrowers are women). We find that external governance mechanisms have little or no effect, while board characteristics consistently and significantly affect social performance.