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Archives of Business Research – Vol. 10, No. 10
Publication Date: October 25, 2022
DOI:10.14738/abr.1010.13307. Avogan, K. (2022). Analysis of the Influence of Governance Quality on the Performance of Savings and Credit Cooperatives in Togo.
Archives of Business Research, 10(10). 125-144.
Services for Science and Education – United Kingdom
Analysis of the Influence of Governance Quality on the
Performance of Savings and Credit Cooperatives in Togo
AVOGAN Komlan
FASEG, University of Lomé, Department of Management Sciences
ABSTRACT
The objective of this paper is to analyze the influence of governance quality on the
performance of savings and credit cooperatives in Togo. To do so, a governance
quality index of fifty-five savings and credit cooperatives was calculated over the
period from 2013 to 2019. The data was collected from the supervision unit of
microfinance institutions and their managers. The results show that governance
quality has a significant and positive effect on the financial performance of
cooperatives. It positively influences the number of active borrowers and the
percentage of female borrowers. However, it has a negative relationship with loan
size. This paper presents the synthetic nature of governance quality in the Togolese
context with a dynamic panel data model. It shows that improved governance has a
positive impact on performance. It constitutes a tool for promoting good
governance practices for the various actors involved in the microfinance sector and
even a basis for developing a good governance charter for this sector.
Keywords: savings and credit cooperative, governance quality, performance, Togo.
INTRODUCTION
Over the past few decades, microfinance has evolved considerably and has become an integral
part of the development policies of many countries around the world. In recognition of the
contribution of microcredit to poverty alleviation, the United Nations General Assembly
declared 2005 the "International Year of Microcredit”. This spotlight is intended to give impetus
to microcredit programs around the world. To date, microfinance and its impact go far beyond
the simple granting of microcredit to poor people excluded from the traditional banking system.
These services include loans, savings mechanisms, insurance, transfers, and even "micro- pensions". The millions of microfinance clients around the world prove that access to financial
services enables poor people to increase their household income, acquire assets and reduce
their vulnerability to crises. Microfinance also helps reduce the extreme vulnerability that
characterizes the daily lives of poor households (Morduch and al., 2003).
Despite the success and popularity of this financial and social inclusion tool, there have also
been failures around the world due to bankruptcies and crises that call into question their
sustainability. Many of these institutions have failed to reconcile their dual objectives.
Mayoukou (2017), notes cases of bankruptcy in several countries including Morocco (2009),
Nicaragua (2009), Bosnia-Herzegovina (2008), the state of Andhra Pradesh in India (2010),
Zambia (2008), Pakistan (2008). The author highlights spectacular bankruptcies in two
countries. In Cameroon, he cites the case of the microfinance savings and credit cooperative
(COOPEMIF) in 2010 and the Coopérative financière de l'estuaire SA (COFINEST) in 2011.
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Similar facts were also noted in 2013 in Congo-Brazzaville regarding Holy Service, Caisse pour
le commerce et le développement (CCD), Congolaise de caution mutuelle (COCAM), Crédit HLM
SA, SIDE SA, Mutuelle de crédit d'aide sociale (MUCASO). West Africa was not spared. Some
networks went bankrupt, such as UCECB in Burkina, the first network in French-speaking Africa
(1969); others were in difficulties, such as FECECAM-Benin, PADME-Benin, and FUCEC-Togo.
As of December 31, 2021, 14 microfinance institutions were under provisional administration,
distributed as follows: Benin (7), Burkina (2), Côte d'Ivoire (1), Niger (2), Senegal (1), and Togo
(1) (BCEAO, 2022). Thirty-four (34) approvals were withdrawn from microfinance institutions
in Togo during the period from 2017 to 2019. Honlonkou (2010) showed that the control
system of these microfinance institutions has design and implementation problems that explain
poor performance results. In another study of the financial sector crisis, Fischer and Desrochers
and Fischer (2002) identify agency problems related to the "manager-member" conflict as the
main cause of financial cooperative failures. In the case of cooperatives, both the diffusion of
membership and the lack of members' skills that can limit control over their activity, managers
generally enjoy a large amount of discretionary space are the causes. Acclassoto and Goudjo
(2012) point out that the activities of microfinance institutions require a mode of governance
that guarantees their sustainability. Unfortunately, these authors note that the modes of
governance put in place lead to the accumulation of counter-performances and are at the origin
of the crises observed. These governance practices explain the crisis in the microfinance sector
today. Governance is one of the primary factors whose quality determines the viability of a
microfinance institution. The quality of governance is denounced everywhere. Thus, these
studies highlight an interdependence between the quality of governance and the performance
of microfinance institutions. In the study by Wele (2009) on the quality of microfinance
institutions in Benin, it was found that the quality of the governance system varies significantly
depending on the institutional form observed. However, he notes a deterioration in the quality
of governance throughout the sector. While direct credit institutions seem to have more
effective governance, mutual or cooperative institutions and NGOs or projects with a
microfinance component still face significant challenges in improving the quality of their
governance. Tlili (2019) undertook a similar study on a sample of 18 MFIs belonging to Arab
countries in the MENA region over the period 2007-2012. The analysis of the governance index
shows that the governance quality of MFIs is closely related to the observed institutional form.
It found a significant and negative effect between the governance index and two aspects of
performance (financial and social).
Our study is an extension of this work, taking into consideration the specificities of savings and
credit cooperatives. Its objective is to analyze the influence of governance quality on the
performance of savings and credit cooperatives in the togolese context through the
construction of a governance index. Thus, we briefly present the literature review and
hypotheses, the methodological approach, and the results.
LITERATURE REVIEW AND HYPOTHESES
Theoretical framework of corporate governance
Corporate governance has become a generic concept used by political scientists, managers,
politicians, international organizations, and many others to describe a mode of management
involving a diversity of actors (Ndengutse and al., 2012). Attempting to define a concept as
broad and multifaceted as governance presents a definite challenge, a bit of folly perhaps
(Lacroix and Pier-Olivier, 2012). It would therefore be simplistic to give a single definition to