Board composition, independence, and financial sustainability of microfinance institutions in Zambia: An integrative strategic perspective

Abstract

Microfinance institutions (MFIs) play a critical role in promoting financial inclusion and supporting small-scale economic activity in developing economies. However, many MFIs continue to experience challenges related to financial sustainability, governance effectiveness, and managerial accountability. This study examines the influence of board composition and board independence on the financial sustainability of MFIs in Zambia, while also assessing the mediating role of leadership accountability and the moderating influence of the regulatory environment. The study adopts an integrative governance perspective drawing on agency theory, stewardship theory, institutional theory, and strategic management theory. A convergent mixed-methods research design was employed. Quantitative data were collected from 114 respondents across 38 regulated microfinance institutions and analysed using descriptive statistics, multiple regression analysis, and mediation and moderation models. Qualitative data were obtained through semi-structured interviews with board members, senior managers, regulators, and clients and were analysed using thematic analysis to provide contextual interpretation of governance practices. The findings reveal that board composition and independence have a positive but statistically insignificant direct effect on financial sustainability (β = 0.081, p = 0.274). However, leadership accountability demonstrates a significant positive influence on sustainability (β = 0.412, p < 0.01) and partially mediates the governance-performance relationship. Qualitative evidence further indicates that boards characterised by independence, gender diversity, and professional expertise enhance strategic oversight, financial prudence, and transparency. The results also suggest that a stable and predictable regulatory environment strengthens the effectiveness of governance mechanisms in MFIs. The study concludes that financial sustainability in MFIs is driven not merely by formal governance structures but by the interaction between effective board oversight, accountable leadership, and supportive regulatory frameworks. By providing empirical evidence from Zambia, this study contributes to the literature on governance in inclusive finance institutions and advances an integrative strategic governance perspective for improving sustainability in the microfinance sectors of emerging economies.