The Moderating Effect of Regulatory Framework on the Relationship Between Corporate Governance and Triple Bottom Line Performance of Microfinance Institutions in Kenya

Microfinance institutions in Kenya continue to face persistent financial instability despite their critical role in promoting financial inclusion and socio-economic growth. This study examined how the regulatory framework moderates the relationship between corporate governance and Triple Bottom Line (TBL) performance of microfinance institutions (MFIs). The purpose was to determine whether regulatory structures strengthen or weaken the effect of governance practices on financial, social, and environmental outcomes. Primary data were obtained through structured questionnaires administered to 84 respondents drawn from 14 purposively selected microfinance banks out of 47 institutions registered under the Association of Microfinance Institutions of Kenya as of December 2024. Stratified random sampling was applied, and data were analyzed using SPSS through descriptive statistics, Pearson correlation, and hierarchical multiple regression. Results revealed that governance indicators board size, activity, diversity, independence, and audit quality positively influenced TBL performance, while inclusion of the regulatory framework increased explanatory power from 53.2% to 65.1%. Significant interaction effects between regulation and governance variables, particularly board size, independence, and audit quality, confirmed the moderating role of the regulatory framework. The study concludes that effective regulation amplifies good governance, thereby enhancing financial stability, social outreach, and environmental responsibility. However, excessive regulatory pressure can hinder innovation and impose compliance burdens that weaken performance. The study recommends that policymakers and regulators adopt a balanced approach that integrates governance reforms with adaptive regulatory oversight to promote resilient, socially inclusive, and environmentally sustainable microfinance institutions aligned with Kenya’s Vision 2030 and the Sustainable Development Goals. Keywords: Moderating Effect, Regulatory Framework, Corporate Governance, Triple Bottom Line, Performance, Microfinance Institutions