Influence of Board Composition and Transparency on the Financial Sustainability of Savings and Credit Cooperative Organizations in Sheema District, Uganda

Abstract

Agency theory posits that board composition and transparency mitigate information asymmetry between members (principals) and management (agents), thereby enhancing organizational performance. However, empirical evidence is limited on how these governance mechanisms influence the financial sustainability of rural Savings and Credit Cooperative Organizations (SACCOs) in Uganda. Consequently, this study investigated the influence of board composition and transparency on the financial sustainability of SACCOs in Sheema District, Uganda. A quantitative cross-sectional design was employed. A standardized five-point Likert scale questionnaire was administered to 298 respondents, including board members, managers, and staff from key departments. Data were analyzed using SmartPLS 4.0 to assess both measurement and structural models. The findings revealed that both board composition and transparency have significant positive effects on financial sustainability. Transparency demonstrated a strong positive relationship (β = 0.553, t = 8.512, p < 0.001), while board composition exhibited a weaker but statistically significant relationship (β = 0.160, t = 2.297, p = 0.022). The model accounted for 46.7% of the variance in financial sustainability (R² = 0.467), indicating that both governance mechanisms collectively explain nearly half of the variation in sustainability outcomes for SACCOs. The study concludes that transparency is the primary driver of SACCO financial sustainability, with board composition serving as a complementary governance mechanism. Based on these findings, the study recommends that SACCO leaders prioritize open financial reporting and accountability structures; professionalize board membership through stringent qualification standards and continuous training; and strengthen both internal and external regulatory oversight. These recommendations hold significant implications for SACCO leaders, policymakers, and regulators seeking to enhance the sustainability of rural financial cooperatives in Uganda.