Assessing the Impact of Corporate Governance on the Financial Performance of Microfinance Institutions in Rwanda: A Case Study of CPF Ineza (2019–2023)

This study investigates the impact of corporate governance on the profitability of Microfinance Institutions (MFIs) in Rwanda, with a focus on CPF INEZA from 2019 to 2023. One major challenge faced by Rwandan MFIs, reported by 45% of institutions, is insufficient leadership capacity, which hinders the achievement of strategic goals. This lack of leadership affects their ability to adapt to market changes and improve customer satisfaction, thereby limiting their contribution to economic development and poverty reduction. The primary objective of the research was to examine how corporate governance influences the profitability of MFIs in Rwanda. Specifically, the study aimed to evaluate the impact of board composition and competence, transparency and disclosure practices, and internal control systems on CPF INEZA's profitability, and to assess the overall relationship between corporate governance and profitability. The study utilized descriptive statistics and Spearman correlation analysis, based on data collected from 141 respondents at CPF INEZA. The data, gathered through surveys and interviews, were analyzed using SPSS. Key findings revealed that factors such as the educational background, gender diversity, the inclusion of independent members, and the board’s appointment process were considered influential in shaping CPF INEZA's board composition. Most respondents also agreed that the board’s competence significantly contributed to effective governance and risk management. Furthermore, respondents acknowledged the importance of CPF INEZA’s annual reports in supporting informed decision- making, and they confirmed the institution’s adherence to disclosure requirements in its financial statements. The correlation analysis showed a significant positive relationship between corporate governance and CPF INEZA's profitability, as evidenced by improved profitability ratios such as Net Profit Margin (NPM), Return on Equity (ROE), and Return on Assets (ROA) from 2019 to 2023. Based on these findings, the first three hypotheses were accepted, while the fourth was rejected. The study recommends improving communication among board members, using banking technology to enhance transparency and disclosure, and strengthening internal control systems to boost financial performance. Overall, the study concludes that corporate governance practices, including board composition, transparency, and internal controls, positively influence the financial profitability of CPF INEZA.