Governance Structure of Microfinance Institutions: A Comparison of Models and Its Implication on Social Impact and Poverty Reduction*

The purpose of this paper is to compare three different models of MFIs, namely microfinance banks (MFB), Microcredit programme (MCP) and rural development scheme (RDS), by focusing on their governance structures, and subsequently analyse their implications on social impact and poverty reduction of the MFIs. Three MFIs, one from each model, will be considered, using Bangladesh as the case study. Bangladesh is a country which is considered to be a pioneer in providing micro-finance to the underprivileged people to improve their entrepreneurial capacity. In methodology, the study relies on Porter’s Competitive Strategy Theory (1979). This theory is based on the concept that five forces determine the competitive intensity and attractiveness of a market which assesses five forces. The study relies on secondary data collected mainly from the annual reports of the three MFIs, and Microcredit Regulatory Authority (MRA) report. This study aims to contribute towards better governance practices of the MFIs given its strong implications on social responsibility, accountability, transparency, financial performance, increasing their social impact and poverty reduction of the MFIs. Findings of this study provide essential inputs on the way forward for the evolution of microfinance, as framed by the global development discourse and subsequent public policy choices. Overall, the study shows that only a limited number of variables influence the social impact and poverty reduction of an MFI. The limitation of the studied investment fund is that it invests in expanding and mature MFI’s. So the ORC-ID: M.N. Uddin 0000-0001-8934-6136; H. Hamdan 0000-0002-5560-3162; N.A Che Embi 0000-0003-17116440; S. Kassim 0000-0002-7514-8750; N.B.M. Saad 0000-0002-2455-904X * This article is a review of the paper presented at the "5th International Ibn Khaldun Symposium" organized on 2728 April 2019 in Istanbul. İD İD

results of this research can only be generalised to expanding and mature MFI's. The approach to microfinance governance should be broadened by focusing more on stakeholders and the decision making process in an MFI. Better social responsibility and poverty reduction of the MFIs contribute positively to financial inclusion through poverty alleviation, empowerment of the poor and better financial access, leading to sustainable economic growth.

Introduction
Bangladesh presents a unique opportunity for studying specific detail aspects of microfinance given a numerous and diversified model of microfinance existed in the country. Ever since the start of microfinance in Bangladesh in 1978 through Grameen Bank, the microfinance industry in the country has continued to expand and evolve rapidly. Bangladesh has a most significant and most wide-ranging microfinance program in the world, with more than 34.76 million active borrowers and BDT 1313.67 (USD 1 16.42) billion gross loan portfolio. This sector manages BDT 771.80 (USD 9.65) billion worth of deposits from 39.48 million depositors who are often referred to as members. The general network of six hundred fifty-five MFIs has provided to access to financial service to 77% of the population. Moreover, according to the microfinance regulatory board (MRA, 2017), conclusions are drawn from an analysis of the microfinance social impact, poverty reduction and governance issues in Bangladesh can be generalised for an entire industry. However, it is activities to provide credit to the poor (Hermes, Lensink, & Meesters, 2011) Many MFIs in the developing countries have had limited achievements in cost efficiency, thus there is an excellent challenge for the MFIs to choose between social impact and poverty reduction (Baklouti, 2013& Parvin et al., 2018. Social impact and poverty reduction are considered as the benchmark of MFIs performance (Baklouti, 2013). Yunus (2007) highlighted that a financially sustainable institution could ensure long-term operation and service to society.
Similarly, in the context of MFIs, sustainable, efficient MFI can serve the social purpose better than a bankrupt MFI, and several studies were conducted to investigate the impact of microcredit programs in different regions. However, there has been a little study conducted on the MFIs' financial sustainability. Additionally, several studies recently showed MFIs declining financial performances, and this has brought the need of examining the efficiency of MFIs (Wagner & Winkler, 2013;Azad, Masum, Munisamy, & Sharmin, 2016).
The Grameen Bank is the first model to introduce the idea of microcredit. This model has been replicated by many other microfinance institutions (MFIs) such as the Self Help Group (SHP). MFBs has also introduced some unique features in providing financial services to the poor. Both types of model are popular and widely used in the country and even outside of Bangladesh. Another popular model is RDS of IBBL which provides some services to the poor according to the shariah principle.
This study analyses three models of MFIs in their governance structures and operational aspects, and these have important implications particularly regarding how the MFIs deal with their borrowers. The principles of conventional MFIs are different from Islamic MFIs in many issues. The practice of interest is the most distinctive feature in conventional MFIs, whereas the principle of profit loss sharing is the key feature of Islamic MFIs. This study will first present a thorough comparative analysis of MFIs, MFBs versus RDS.
Second, by analysing how organisational governance structure impacts institutional practices, including client poverty reductions and social impact the institutional parameters of transparency, reliability, and flexibility -especially relevant for microfinance (Parvin, Mohiuddin, Hoque, & Su, 2018).
On the backdrop of these issues, this study aims to conduct a comprehensive analysis of the three main models of microfinance, namely the MBF, MCP, and RDS, and subsequently compare the operational structure and the services offered by the MFIs as well as their functions. In particular, a comparison will be made in the financial performance of Grameen, MFI, and RDS, covering their social impact and poverty reduction, management system, financing, and financial performance. The review also covers the evolution of microfinance and the regulatory environment in Bangladesh.
This study investigates the possible impact of governance structure attributes to determine the attractiveness of a business entity and affects its ability to serve its customers and make a profit, using microfinance institutions (MFIs) from Bangladesh. Do these paper results show that MFB and MCPs hurt the financial performance of MFIs, and RDs have a positive effect if it augmented by gender diversity in management. The rest of the paper is organised as follows. Section 2 provides an overview of the extant literature on the governance of MFIs; Section 3 describes the research methodology; Section 4 contains the analysis of the impact of governance structure on MFI performance, and finally, Section 5 comprises some concluding remarks.

Literature Review
In Bangladesh, microfinance becomes an essential industry as the country is considered

Microfinance Banking (MFB) Model
Also known as the microfinance Banking model, the operation of this model based on a group-based credit approach. It targets the poorest of the poor. This group structure provides mutual support of its members and encourages group with strict discipline, allowing the borrowers to maintain good credit status and ensuring repayment in time.
The system works based on trust. There is no written contract between MFB, and its borrowers 87 per cent of its members are women, and bank claims a loan recovery rate 99 per cent. Besides these things, MFB believes that charity is not an answer to poverty. Yunus (2007) also emphasised to enlarge tools and services of financing that benefit the poor. Their outcomes and impacts were supposed to be carefully deliberated by institutions and system which work on development and poverty alleviation. As of now, MFB has 2568 branches in operation with nearly 9 million borrowers having an outstanding overall 93.15 per cent repayment rate. Yunus (2008) says "microcredit is supposed to describe loans offered with no collateral to support income generating business aimed at lifting the poor out of poverty. He further suggests that the microcredit summit campaign which is a database of all microcredit programs should include only one type (poverty fighting) programs because only these contribute to the campaign's goal of using microcredit to help to eliminate poverty.
Indeed, microfinance's wide-reaching identification can be attributed to Muhammad Yunus, founder of MFB in Bangladesh. In 2006, the Nobel prize for peace was awarded to Muhammad Yunus and the MFB in the 1970s as an effort to address the multidimensional aspects of poverty. In the Nobel honorary reception, Professor Yunus says "I strongly believe that we can create hunger and poverty-free world if we collectively believe in it. In a poverty-free the world and the only place would be able to see poverty is in the poverty museums". As he believed that "the poor have an entrepreneurial drive and well equipped with survival skills that let them turn out a successful microentrepreneurs." These views of Yunus were further supported by Engler (2009).
More importantly, microfinance is a financial movement that tries to serve the poor because they are not capable of offering sufficient collateral. The traditional Banks and other financial institutions generally do not consider them creditworthy, but Muhammad Yunus, the founder of the MFB Bangladesh, proved that the poor are creditworthy and bankable. Indicates that credit will not be a new practice to the weakest members of the society as most of them borrow either from friends, relatives or local moneylenders. The UN Millennium project (2005) suggests that "microfinance is one of the practical development strategies, approaches that should be implemented, supported to attain the bold ambition of reducing world poverty by half." In light of the MFB model, the next sub-section examines how conventional microfinance is operational in Bangladesh.

Micro-Credit Programme Model
Since 1974, the micro-credit programme (MCP) started its credit operation which now becomes one of the largest MFIs, regarding loan coverage and clients. Its lending approach is almost similar to the MFB. Like many other MFIs, it has the goal which is to alleviate poverty through empowerment.
Bangladesh with its 42 % people living below poverty line and 8.5% living in absolute poverty is suffering from acute rural-urban economic disparity and illiteracy, lack of proper health and sanitation facilities. The country's economy undoubtedly an agrarian one with the vast majority are living in village or rural areas. The agriculture sector and handicrafts are unable to provide any further scope for employment resulting in the influx of rural population towards urban areas. Stagnant agriculture and small industries characterise rural areas. Now underemployment and unemployment is a regular phenomenon, especially in rural areas. The vast human resources (HRM) have remained unutilized due to some lack such as (education, training, funding, and concerted efforts) to help grow the rural economy.
MFIs have undertaken many holistic approaches to alleviate poverty. The 'credit plus' is one of the methods through which borrowers enjoy the quality inputs, training and necessary support in marketing their products. Another approach is "Microloans" (Dabi), ranges from US$100-US$1,000, given to the borrowers. This type of loan usually disbursed for undertaking different income generating activities including fishing farm, poultry, livestock, fruit and vegetable cultivation, handicraft and other rural business.
The loan repayment method is now more flexible that supports borrowers to repay their instalments is the monthly basis or weekly basis. From an economic viewpoint, this arrangement is cost effective for the institution also (Amin & Author, 2011).
Another poverty alleviation scheme of MFIs-NGO is named as 'Progoti loan' (i.e., 'Progressive loan') ranges from US$1,000-US$ 10,000 that covers both male and female entrepreneurs. Indeed, these entrepreneurs are non-bankable and not qualified to receive a loan from the commercial bank for their small enterprises like grocery shops and smal1 scale manufacturing farms (Amin & Author, 2011). MFIs-NGOs initiates a new step to reach out to the ultra-poor (who are suffering from chronic extreme poverty) and to help them in achieving the socio-economic developmental goal. The target population selected for providing them with various supports such as asset grant, skill training, healthcare service. Also, MFIs-NGOs forms village poverty reduction community to supervise and monitor the overall activities of the target group. Once the ultra-poor members have completed their assigned work in two-year grant phase, then they are allowed to join in the mainstream development program of MFIs-NGOs, and they enjoy wide ranges of financial services along with health care, human rights, and legal aids. The RDP has two wings, namely, income and employment generating a program for enhancing social development. Not only that, but the program also provides microcredit along with other support such as training facilities, raw material or input supplies and product marketing. These services are confined to only six particular sub-sectors, namely, fisheries, livestock, poultry, vegetable cultivation, sericulture, and social forestry.
In 1995, the Rural Development Scheme (RDS) established for ensuring equity, justice and employment opportunity for the rural people. The scheme is designed in a way to meet the investment needs of rural people, particularly in the agricultural sector. It supports them to get rid of poverty and to become self-reliant. It emphasises both farming and off-farming activities that not only create jobs but also enhance their incomes (Obaidullah, 2008).
Until now, the scheme is considered one of the largest Islamic Microfinance programs across the country (Chowdhury, 2007). According to a study, only 7% of 1 million borrowers have access to financial services in Bangladesh (Bhuiya, 2006). This small group of borrowers has a better chance to receive Islamic Microfinance services from RDS not only due to its flexible terms and conditions of the loan but also due to low charge for a loan amount (Obaidullah, 2008

Research Methods
The principal of Porter's competitive strategy theory (1979) explains as to why it is incentive compatible for comparison, to design a pay structure for model and workers that partially based on performance. If it were possible to design a complete and comprehensive contract that covers future periods in a costless fashion, it would deem the competitive strategy theory redundant in providing a role for corporate governance structure and social impact.
According to Momanyi, Ragama, & Kibati (2018), it explains how the study conceptualised, how data would be collected and analysed. Hence it does not only provide the philosophical basis for the study but also the practical roadmap. This study adopted a causal research design. The design was adopted because the study conceptualised in such a way that one thing causes another, such as good governance practices causing the social impact and poverty reduction of the industry. However, some institutions did not have available data while others were in the Grameen Bank, MCP, and RDS with microfinance divisions.
This study used secondary data, different techniques and approaches to data processing, analysis and presentation were applied. The techniques and approaches determined by the type of data collected. The analysis was mainly through descriptive statistics and inferential statistics. This study investigates the possible impact of governance structure attributes to determine the attractiveness of a business entity and affects its ability to serve its customers and make a profit, using microfinance institutions (MFIs) from Bangladesh.
These results show that MFB, MCPs hurt the financial performance of MFIs, and RDs have a positive impact if it is augmented by gender diversity in management.

Data Analysis and Interpretation
The above discussion on three selected MFIs reveals that each of the institutions has a certain way of dealing with their borrowers. The principles of conventional MFIs are different from Islamic MFIs in many aspects. The practice of interest is the most distinctive feature in conventional MFIs whereas the principle of profit loss sharing is the key feature of Islamic MFIs. The following Table 4 presents the fundamental differences among the three MFIs under study. Before starting the discussion on microfinance institutions and their contributions to attainting social impact and poverty alleviation, this scenario is microfinance institutions in Bangladesh. Bangladesh is leading in microfinance institutions .it has a large number of NGOs that are involved in giving collateral -free credit to the poor and ultra-poor people. By providing microcredit, these NGOs have been able to reduce poverty in millions of families through a generation of own-orientated employment over the last couple of years. Microfinance institutions in Bangladesh gained pace after establishing the microcredit regulatory authority in 2006. The microfinance development in Bangladesh in recent years is summarised in Table 4. From Table 4, although the number member, borrowers, amount of loan outstanding, amount of deposit outstanding, loan disbursement in June 2017. Table 5 below shows more detailed information as regards to MFB (Grameen Model), MFIs (Microcredit model) and RDS in IBBL show in the following table.
The study focuses on the success and failure factors MFB Grameen Model, MFIs and RDS in IBBL. In their comparative analysis, we show that the overall governance structure of RDS is relatively better than the rest others regarding growth, repayment rate, charging fees, operational efficiency, accountability, and transparency. For example, the annual growth rate of RDS is 12.57 per cent while this rate is around 7 per cent in the case of both MFB and MFIs. The RDS is relatively new in the Microfinance Industry in Bangladesh compare with MFB and MFIs. However, the scheme is getting popular among the borrowers who have the firm belief in Islamic morals and values.

Microfinance Model
The capital structure of the NGO is unique, that is, similar to that of a non-banking financial institution, which currently social impact is some branches 17,120.   Khandker (2005) focuses on the MFB, MFI, and RDs and shows that households who are poor in landholding and have formal education tend to participate more in the program, and microfinance program is much useful in reducing extreme poverty than moderate poverty. Besides, the welfare effect of the program's participation is also positive for all households, including non-participants due to the spillover effects.
While studying the case of MFI and MFB in Bangladesh, confirm that the borrower's income is significantly related to certain variables, i.e., land holding size, total yearly employment, amount of loan, days suffered from morbidities; the number of times loan taken, family labour; length of membership and length of training. Moreover, regression analysis shows that three variables such as family labour positively relate the income of the NGO beneficiaries, the days worked in a year and land holding size, which the factor days are holding size, while the factor days suffered from morbidities impacted negatively.
It was that NGO membership length, times, and a loan taken has no impact on their income rather than an increase in the amount of land asset, employment, family labour to the difference of the repayment system, BRAC's member enjoys much flexibility than GB's member. That is why to increase income and consumption; it takes a more extended period in the case of GB comparing to NGO. The study finding demonstrates that NGO is efficiently utilising its resources than GB. Hence, MFIs-NGO is comparatively ahead of poverty alleviation; however, if the institution does not find a way to improve its economic performance, its action will not be sustainable in the long run. For MFB, they suggest that it needs to increase the training for its members and to exploit other sectors of self-employment.
Ahmed (2008)   In Bangladesh, numerous studies conducted in Microfinance which have found a positive impact on improving borrowers' capacity to generate income, and also help to enhance their households incomes, fixed assets, net working capital, spending on food and medical facilities and children's schooling. These studies mostly observe the impact of Microfinance program on household incomes and assets only. However, the weakness of these studies is not to address the effectiveness of the program.
MFIs impacts positively as the participants can afford health care and even to educate their children up to a higher level. Hence, the program makes the participants both physically and economically active which are the necessary conditions for poverty alleviation. In another study, it shows that MFIs can also build up the dignity and the self-confidence among the participants.t also impact positively on their loan repayment performances and sustainable incomes.
The MFIs are social impact and poverty reduction particularly in a place or area where it is tough to get a loan from the NGO financial institution, and the rate of interest is high.
Hence, MFIs are designed in such a way that the borrowers have easy access to a loan with a low rate of interest. For instance, 5 per cent of the total participants of both MFB and MFIs-NGO get rid of poverty annually. Moreover, the MFIs are found thriving in an environment where loans are sanctioned to those who have entrepreneurial skills. It is found that 42 per cent of the total of GB's members has successfully been able to cross the poverty line.
A study on MFB, MFIs-NGO, and RDs confirm the usefulness of MFIs regarding reaching the poor. However, the programs are found social impact and poverty reduction in reaching the hardcore or vulnerable poor (Amin & Author, 2011). Similarly, BRAC's MFI has a positive impact on human well-being, schooling of children and the survival rate of group members. Khandker (2005), in his subsequent research, demonstrates that MFIs is adequately addressing the issue of poverty as the program facilitates the individual borrowers and households to enhance their incomes, health care, nutrition, empowerment, and education. Thus, they get rid of poverty and hunger and move on to a higher standard of living. Nevertheless, measuring the outreach and sustainability of MFIs would be more appropriate if some other factors such as interest rate, loan size and use of loan were included in the studies.
RDS is becoming accessible and useful because of practising moral and spiritual values among the group members and the field staff. It leads borrower to generate higher income, saving, reduction of production cost and family expenditure. MFIs have a crucial role in upgrading the livelihood of rural inhabitants. He suggests that even with the assistance of MFIs, the agricultural sector can be developed where rural people mostly rely on their jobs. Some factors such as technological advancement, infrastructural development, and fair market arrangement can change the agricultural sector, and MFIs have a pivotal role to play.
The poor are hardworking and innovative, so they need decent options to apply their skills and qualifications in conducting businesses. Although in some cases MFIs are charging high-interest rate compare with the conventional financial institution, the borrowers used to get loans and maintain good repayment performances which lead them to success in various petty businesses.
The author applies qualitative and quantitative analysis to justify the efficiency of Microfinance operations. The result indicates that MFIs has a positive effect on borrowers (those who have joined the program for at least three years) regarding household incomes and expenditures. Also, borrowers have been able to intersect the extreme poverty line, but they are yet to cross the moderate poverty line. Besides, the MFI has created employment opportunities to enhance the income levels of the borrowers.
However, the impact of the program on the borrowers' savings and the conditions of dwelling houses are found insignificant.

Conclusion
This study finds that the pressure to earn commercial profits has weakened the poverty alleviation agenda for most MFBs and MFIs. RDs, in comparison, appear more committed to their social mission. Part of the reason is that MFIs are operationally more flexible and can keep their operational costs low, thanks to fewer regulatory requirements, which allows them to expand outreach to more indigent clients, who are in general more expensive from the institutional point of view. However, the findings also suggest that the distinctions between the two institution types are in no small extent policy driven.
MFIs have become more committed to achieving financial sustainability. It has meant that most MCPs and MFBs now target the less poor or even the non-poor; most MFBs and some MFIs do not lend to start-ups. At least one MFI asks its borrowers to pay a few days ahead of the actual due date so that repayment rates can look good, and most MFBs have stepped up lending against gold -a clear departure from the original noncollateralized microfinance model.
The study finds RDs, a zero interest based MFI, to be the sector's clearest outlier. It mainly seeks social change and poverty alleviation and has little interest in becoming commercially viable. However, there are other institutions the poverty alleviation agenda takes precedence over finding financial returns.