The effects of board characteristics on financial performance among deposit taking micro finance institutions in Nairobi county

Abstract

With the g rowing competition of globalization, strategic decision makers have been faced with the competing interests of external and internal stakeholders such as greater diversity in corporate governance and maximizing financial performance. The objective of this study was to determine the effect of board characteristics on financial performance among Deposit Taking Microfinance Institutions (DTMFI`s) in Nairobi County. This study focused on board characteristics: the board size, board terms, board committees and board remuneration. The target populations were the board members of the nine DTMFI`s in Nairobi. A census was taken since the target population was considered small and therefore the sample size was 63. The study involved collection of primary data .The data was collected using structured questionnaire on the basis of the objectives of study. The data collected was analyzed using qualitative methods to yield descriptive statistics (percentages, mean and standard deviations) and quantitative data was analyze d using statistical data analysis techniques ; correlation, ANOVA and multiple regression to test the effects of board characteristics on financial performance among the Deposit Taking Microfinance Institutions in Nairobi County. Results were presented in tables. Findings from correlation analysis indicated medium and positive correlation between board committees and board remuneration. The results on coefficient of regression equation revealed that all the variable s were making statistically significant unique contribution to the prediction of financial performance where the board size (t=2.729; p< 0.05), board tenure/term (t= 3.778; p<0.05), number of board committees (t=2.217; p< 0.0 5 ) and board remuneration (t=2.182; p<0.05 ) . Board tenure/term `s had the biggest b eta value of - 0.300 and therefore it made the strongest unique contribution in explaining financial performance when variance explained by all other variables in the model were controlled for. These results indicated that deposit taking microfinance institutions in Nairobi County can improve their financial performance by improving on the board characteristics to make monitoring more effective. Further research needs to be carried out to establish the challenges facing all microfinance institution in the whole count r y .