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Good governance is crucial to achieving an organization's mission. Nevertheless, little is known about how the structure of governance is influenced by the nonprofit (NPO) or for‐profit ownership (FPO) structure of an organization, partly because they tend to be active in different sectors. In this paper we overcome this challenge by using data from a global sample of 392 microfinance institutions. The results show that the average NPO has a larger board, more female directors, and a higher number of board meetings than the average FPO. Moreover, where there are larger boards and more frequent board meetings, this has a positive effect on the financial performance of NPOs. It is thus confirmed that ownership structures influence boards’ characteristics and that some board mechanisms are more efficient in some ownership structures than in others. An effective board design should thus be based on a firm's ownership structure.

PurposeThe purpose of this paper is to empirically relate subordinate board structures with improved financial and social performance in microfinance institutions (MFIs).Design/methodology/approachThe research question is analyzed using a panel data from 23 MFIs in Ethiopia over a period of 2006-2011. Random effects panel data estimation is applied to analyze the link between board committees and MFI’s performance.FindingsIn MFIs with larger than average boards, the findings demonstrate significant ties between financial and outreach performance and how their boards are structured. The structure of board committees moderates the relation between board size and financial and outreach performance measures. Importantly, board committee benefits MFIs through better operational self-sufficiency, lower operating expenses, greater outreach to customers, and outreach to poorer customers using average loan size as the proxy.Practical implicationsPractitioners within microfinance sector, and those operating in advisory and regulatory roles to the sector could benefit from the argument advanced in the paper in that normative recommendation to restructure boards or establish committees requires reevaluating the board characteristicsvis-à-visthe optimal monitoring, controlling, and advising needs of the institution.Originality/valuePrior literature focuses on who sits on boards, how large are the boards, and how independent are they. This paper advances the understanding of the structure of board committees and how this may affect the performance of MFI. This approach provides better representation of director’s role and is thereby a good test of board effectiveness.