ASSESSMENT OF CORPORATE GOVERNANCE COMPLIANCE CULTURE IN NIGERIAN MICROFINANCE BANKS

ABSTRACT

This research examined the compliance of Nigerian Microfinance Banks (MFBs) with the Central Bank of Nigeria (CBN) Code of Best Practice on Corporate Governance applicable to Microfinance banks. The CBN microfinance policy framework (CBN, April, 2011) mandated MFBs to comply with extant corporate governance principles and Code of best practices; as there is no separate Code specific for MFBs. The recent challenges in the microfinance industry in 2010 centered on the issues of poor corporate governance practices, leading to the revocation of the licences of about 234 MFBs by the CBN. The research covered the period from the establishment of the CBN microfinance policy framework in December, 2005 to 2011. The objective of this research is to determine if corporate governance compliance problems are still lurked in MFBs, to avert more MFBs losing their operating licences. Corporate governance best practice has in recent years assumed arising significance as a veritable tool for assuring corporate survival. The research adopted an empirical survey of a random sample of (20) twenty MFBs in Nigeria and assessed the corporate governance compliance of the sampled MFBs as represented by disclosures in their annual financial reports. In examining the annual financial reports, a compliance assessment index was developed by the researcher and the contents were benchmarked against specific provisions of the researchers proposed Model CBN Code of corporate governance for microfinance banks, to assess their compliance or non-compliance with the Codes. Each MFB was awarded a score of ‘1’ if it appears to have complied and ‘0’ if otherwise. The researcher tested the hypothesis that MFBs are not generally compliant. The outcome of the test rejected the null hypothesis, which invariably indicated that over 48% of sampled MFBs are not fully compliant with all of the CBN Code. This study thus recommends that CBN should encourage enhanced corporate governance compliance amongst MFBs in Nigeria by requiring mandatory annual compliance assessment and disclosure of compliance status in auditors’ report.