Board Gender Diversity and the Portfolio Credit Risk of Microfinance Institutions (MFIs): A Critical Mass Theory Perspective

ABSTRACT While previous studies show that board gender diversity enhances financial performance in traditional financial institutions, little is known about its association with portfolio risk in microfinance institutions (MFIs). This study addresses this gap by examining the impact of board gender diversity on MFI portfolio risk from a critical mass perspective. Using data from the World Bank's MIX Market database covering 1184 MFIs across 98 countries between 2010 and 2018, we employ conventional econometric tools and techniques, including endogeneity‐corrected methods. The results indicate that female board members reduce MFI credit risk. Furthermore, the study confirms that a critical mass of women is essential to realizing this effect. These findings remain robust across subsample analyses (e.g., income levels) and various endogeneity‐corrected techniques (e.g., Hausman–Taylor, generalized two‐stage least squares [G2SLS], and lagged models). The study highlights the importance of integrating gender quotas on MFI boards to minimize portfolio credit risk in the long term, offering valuable implications for policymakers and academics.