Microfinance Institutions Ratings: The Influence of Board Characteristics

This article aims to test empirically the relationships among board characteristics, audit quality, and microfinance institution (MFI) ratings. An ordered logistic regression enables the study of a sample of 260 international MFIs that were rated between 2002 and 2008. Because of the potential for selection bias, a two-step Heckman selection model procedure is used to test the findings’ robustness. The results show that board expertise, activity, and the audit have a significant influence on MFI ratings. This influence varies, however, from one rating agency to another, indicating that the informational
value of ratings differs across rating agencies. A comparative study of the impact of board characteristics shows that board activity becomes a more important factor when an MFI has been rated by Planet Rating.
Keywords: Ratings; Board of Directors; Governance; Microfinance.
JEL Classification: G21, G24, G30, L31