Board composition, independence, and financial sustainability of microfinance institutions in Zambia: An integrative strategic perspective

Lubinda Haabazoka; Eledy Sakala; Sumbye  Kapena; Chanda  Shikaputo

doi:10.51867/AQSSR.3.1.54

Authors

Prof. Lubinda Haabazoka The University of Zambia, Zambia Author https://orcid.org/0000-0003-4055-2531
Eledy Sakala Copperbelt University, Zambia Author https://orcid.org/0009-0003-4702-1562
Prof. Sumbye Kapena The Copperbelt University, Zambia Author https://orcid.org/0000-0002-1791-1180
Prof. Chanda Shikaputo The Copperbelt University, Zambia Author https://orcid.org/0000-0003-1118-5293

DOI:

https://doi.org/10.51867/AQSSR.3.1.54

Keywords:

Board Composition, Board Independence, Corporate Governance, Financial Sustainability, Leadership Accountability, Microfinance Institutions

Abstract

Microfinance institutions (MFIs) play a critical role in promoting financial inclusion and supporting small-scale economic activity in developing economies. However, many MFIs continue to experience challenges related to financial sustainability, governance effectiveness, and managerial accountability. This study examines the influence of board composition and board independence on the financial sustainability of MFIs in Zambia, while also assessing the mediating role of leadership accountability and the moderating influence of the regulatory environment. The study adopts an integrative governance perspective drawing on agency theory, stewardship theory, institutional theory, and strategic management theory. A convergent mixed-methods research design was employed. Quantitative data were collected from 114 respondents across 38 regulated microfinance institutions and analysed using descriptive statistics, multiple regression analysis, and mediation and moderation models. Qualitative data were obtained through semi-structured interviews with board members, senior managers, regulators, and clients and were analysed using thematic analysis to provide contextual interpretation of governance practices. The findings reveal that board composition and independence have a positive but statistically insignificant direct effect on financial sustainability (β = 0.081, p = 0.274). However, leadership accountability demonstrates a significant positive influence on sustainability (β = 0.412, p < 0.01) and partially mediates the governance-performance relationship. Qualitative evidence further indicates that boards characterised by independence, gender diversity, and professional expertise enhance strategic oversight, financial prudence, and transparency. The results also suggest that a stable and predictable regulatory environment strengthens the effectiveness of governance mechanisms in MFIs. The study concludes that financial sustainability in MFIs is driven not merely by formal governance structures but by the interaction between effective board oversight, accountable leadership, and supportive regulatory frameworks. By providing empirical evidence from Zambia, this study contributes to the literature on governance in inclusive finance institutions and advances an integrative strategic governance perspective for improving sustainability in the microfinance sectors of emerging economies.

References

Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291-309. https://doi.org/10.1016/j.jfineco.2008.10.007 DOI: https://doi.org/10.1016/j.jfineco.2008.10.007

Ansong, A., Marfo-Yiadom, E., & Abor, J. Y. (2022). Corporate governance and financial performance of financial institutions in Africa: The role of board structure and accountability mechanisms. African Journal of Economic and Management Studies, 13(2), 256-273. https://doi.org/10.1108/AJEMS-04-2021-0187

Anthony, R. N., & Govindarajan, V. (2007). Management control systems (12th ed.). McGraw-Hill Education.

Bank of Zambia. (2023). Financial systems supervision annual report. Bank of Zambia. https://www.boz.zm/financial-systems-supervision-annual-reports.htm

Braun, V., & Clarke, V. (2019). Reflecting on reflexive thematic analysis. Qualitative Research in Sport, Exercise and Health, 11(4), 589-597. https://doi.org/10.1080/2159676X.2019.1628806 DOI: https://doi.org/10.1080/2159676X.2019.1628806

Creswell, J. W., & Plano Clark, V. L. (2018). Designing and conducting mixed methods research (3rd ed.). Sage.

Dalton, D. R., Hitt, M. A., Certo, S. T., & Dalton, C. M. (2011). The fundamental agency problem and its mitigation. Academy of Management Annals, 1(1), 1-64. https://doi.org/10.5465/078559806 DOI: https://doi.org/10.5465/078559806

Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47. https://doi.org/10.2307/259223 DOI: https://doi.org/10.2307/259223

DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality in organizational fields. American Sociological Review, 48(2), 147-160. https://doi.org/10.2307/2095101 DOI: https://doi.org/10.2307/2095101

Ehikioya, B. I. (2009). Corporate governance structure and firm performance in developing economies. Corporate Governance: The International Journal of Business in Society, 9(3), 231-243. https://doi.org/10.1108/14720700910964307 DOI: https://doi.org/10.1108/14720700910964307

Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning.

Hartarska, V. (2005). Governance and performance of microfinance institutions in Central and Eastern Europe and the newly independent states. World Development, 33(10), 1627-1643. https://doi.org/10.1016/j.worlddev.2005.06.001 DOI: https://doi.org/10.1016/j.worlddev.2005.06.001

Hartarska, V., & Nadolnyak, D. (2007). Do regulated microfinance institutions achieve better sustainability and outreach? Cross-country evidence. Applied Economics, 39(10), 1207-1222. https://doi.org/10.1080/00036840500461840 DOI: https://doi.org/10.1080/00036840500461840

Hassan, M. K., & Mersland, R. (2018). Governance and performance of microfinance institutions in Africa. Journal of African Business, 19(3), 368-388. https://doi.org/10.1080/15228916.2017.1414610

Hayes, A. F. (2018). Introduction to mediation, moderation, and conditional process analysis: A regression-based approach (2nd ed.). Guilford Press.

Hermes, N., Lensink, R., & Meesters, A. (2011). Outreach and efficiency of microfinance institutions. World Development, 39(6), 938-948. https://doi.org/10.1016/j.worlddev.2009.10.018 DOI: https://doi.org/10.1016/j.worlddev.2009.10.018

Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X DOI: https://doi.org/10.1016/0304-405X(76)90026-X

Kang, H., Cheng, M., & Gray, S. J. (2007). Corporate governance and board composition: Diversity and independence of Australian boards. Corporate Governance: An International Review, 15(2), 194-207. https://doi.org/10.1111/j.1467-8683.2007.00554.x DOI: https://doi.org/10.1111/j.1467-8683.2007.00554.x

Klapper, L. F., & Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5), 703-728. https://doi.org/10.1016/S0929-1199(03)00046-4 DOI: https://doi.org/10.1016/S0929-1199(03)00046-4

Mersland, R., & Strom, R. O. (2009). Performance and governance in microfinance institutions. Journal of Banking and Finance, 33(4), 662-669. https://doi.org/10.1016/j.jbankfin.2008.11.009 DOI: https://doi.org/10.1016/j.jbankfin.2008.11.009

Mori, N., Randoy, T., & Golesorkhi, S. (2013). Determinants of board structure in microfinance institutions: Evidence from East Africa. Journal of Emerging Market Finance, 12(3), 323-365. https://doi.org/10.1177/0972652713512916 DOI: https://doi.org/10.1177/0972652713512916

Nunnally, J. C. (1978). Psychometric theory (2nd ed.). McGraw-Hill.

Terjesen, S., Couto, E. B., & Francisco, P. M. (2016). Does the presence of independent and female directors impact firm performance? A multi-country study of board diversity. Journal of Management and Governance, 20(3), 447-483. https://doi.org/10.1007/s10997-014-9307-8 DOI: https://doi.org/10.1007/s10997-014-9307-8

Tricker, B. (2015). Corporate governance: Principles, policies, and practices (3rd ed.). Oxford University Press.

Zahra, S. A., & Pearce, J. A. (1989). Boards of directors and corporate financial performance: A review and integrative model. Journal of Management, 15(2), 291-334. https://doi.org/10.1177/014920638901500208 DOI: https://doi.org/10.1177/014920638901500208