Governance and performance of microfinance institutions in central and eastern Europe and the newly independent states

This paper presents the first evidence on the impact of governance on outreach and sustainability of microfinance institutions (MFIs) in Central and Eastern Europe and the Newly Independent States. The results indicate that performance-based compensation of managers is not associated with better-performing MFIs; lower wages suggested for mission-driven organizations worsen outreach, while managers' experience improves performance. The results also identify tradeoffs between MFI outreach and sustainability depending on stakeholders' representation on the board and provide strong support for independent boards with limited employee participation. In the study region, external governance mechanisms seemed to play a limited role. (c) 2005 Elsevier Ltd. All rights reserved.