Does External Stakeholder Orientation in Corporate Governance Influence in Sustainability and Outreach of Microfinance Institutions?

Abstract

This is a literature based desk study that evaluates the role of external stakeholders in governance of Microfinance Institutions (MFIs) in reaching their double bottom line objectives. Specifically it tries to identify who are the external stakeholders, roles of these stakeholders in corporate governance and how these stakeholders influence outreach and sustainability of MFIs. Overall observation is that external stakeholder orientation in board does not ensure financial performance rather than social performance. Regulation and supervision, external rating, external auditing and reporting, international orientation and professional affiliation do not help in increasing profitability, however, sometimes help in deeper outreach. Competition worsens MFIs financial performance but sometimes improve organizational efficiency. There are different types of stakeholders in MFIs and due to their atypical operational formats. The involvement of external stakeholders is different than that of corporations due to their different operational and funding structures which is important to address. This study tries to address this issue.

Keywords: external stakeholders, sustainability, outreach, MFIs.