GOVERNANCE MECHANISMS AND RISK MANAGEMENT AS DETERMINANTS OF FINANCIAL SUSTAINABILITY IN MICROFINANCE OF EMERGING ECONOMIES: EVIDENCE FROM NIGERIAN MICROFINANCE INSTITUTION

Microfinance institutions (MFIs) have come to be seen as a pillar in financial inclusion and poverty reduction in the developing economies, especially in the sub-Saharan Africa. This paper examines the role of governance and risk management towards financial performance and sustainability of MFIs in Nigeria. Based on secondary panel data and regression estimates, the findings show that risk managers, risk committees, and full fledged governance systems are key to increasing both a return on assets (ROA) and operational self-sufficiency (OSS). Nevertheless, the quality of loan portfolios has a negative correlation with financial results, which highlights the long-term credit risk issues. The stability of the findings is proved by sensitivity and robustness analyses, whereas, post-estimation diagnostics demonstrate that the models are well-specified and have no econometric issues. The paper emphasizes the roles of integrated governance reforms, capacity building and adoption of innovative credit risk management tools in promoting institutional resilience. It concludes that good governance is a strategic value added in ensuring sustainable financial inclusion in the emerging markets.