In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial (...) to understand under what conditions microfinance institutions are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis. (shrink)

Microfinance institutions are alternative financial providers offering financial services to people typically excluded from the standard banking sector. While most MFIs are active in developing countries, there is also a young and developing microfinance sector in Europe; however, very little literature exists on this MFI segment. In this paper, we analyze the environmental performance of 58 European MFIs. Our results suggest that the size of the MFI, investor concern for environmental performance and, to a lesser extent, donor interest, (...) are closely related to the institution’s environmental performance. Moreover, providing loans larger than microcredits is linked to better environmental performance. This could suggest that the additional revenues generated from these loans, also called cross-subsidies, could help MFIs to strengthen their environmental bottom line. Finally, no evidence suggests that profit status explains environmental performance. (shrink)

In recent years, development practice has seen that microfinance institutions are starting to consider their environmental bottom line in addition to their financial and social objectives. Yet, little is known about the characteristics of institutions involved in environmental management. This paper empirically identifies the characteristics of these MFIs for the first time using a sample of 160 microfinance institutions worldwide. Basing our analysis on various econometric tests, we find that larger MFIs and MFIs registered as banks tend to (...) perform better in environmental policy and environmental risk assessment. Furthermore, more mature MFIs tend to have better environmental performances, in particular in providing green microcredit and environmental non-financial services. On the other hand, financial performance is not significantly related to environmental performance, suggesting that ‘green’ MFIs are not more or less profitable than other microfinance institutions. (shrink)

Microfinance began with the noble aim of alleviating poverty through the extension of small loans to poor borrowers, and has grown to now serve approximately 200,000,000 people-the majority of whom are female. Yet despite claims to the contrary, the practice has not been proven to have succeeded in either enriching or empowering its borrowers. In a thorough-going ethical assessment of the industry, Can Microfinance Work? examines the central microfinance model and whether or not it is effective, the (...) extent to which the practice creates the conditions for exploitation and coercion to occur, and whether the distribution of the benefits and burdens of microfinance is likely to be an ethical one. Author Lesley Sherratt argues for the establishment of a duty of care in microfinance in recognition of the vulnerability of the client base. She also examines the ethical dilemmas inherent in working in the informal sector, as well as microcredit's macro impact on economies. From there, Sherratt draws some wider lessons microfinance can offer anti-poverty developments in general.Challengingly, the book considers how microfinance might be reformed to ensure it is practiced both more ethically and effectively, and in doing so, argues that only a part of the industry may survive in its current form. The bulk could instead bifurcate in to one of two camps, either scaling down to become predominantly savings rather than credit vehicles, probably subsidized; or scaling up to provide credit to small and medium enterprise lending operations. For the rest, it is argued that establishing a non-exploitative interest rate, ending the practice of group liability, and fully specifying a duty of care -- with, if necessary, regulation developed to enforce these -- are microfinance's urgent ethical priorities. (shrink)

ABSTRACT:Microfinance is often assumed to be an ethically progressive industry, but in recent years it has been the target of much ethical criticism. Microfinance institutions have been accused of using exploitative lending techniques and charging usurious interest rates; and critics even question the ability of microfinance to alleviate poverty. This article reviews recent research on the microfinance sector that addresses these ethical issues. We show how this research is relevant to a number of theoretical issues, such (...) as how to define poverty, how to understand exploitation, and how to balance financial and social goals in commercial organizations. We conclude by identifying a critical agenda for future research. (shrink)

Recent research suggests that many microfinance institutions increasingly focus on financial performance at the expense of the social component of their dual objectives. Existing studies typically assume that capital providers and managers mainly drive this so-called mission drift. In this study, we investigate whether ‘personal mission drift’ at the credit officer level can further explain the reduced emphasis on poorer clients among microfinance institutions. We present both qualitative and quantitative evidence that more experienced credit officers tend to serve (...) fewer vulnerable clients. Specifically, we show that all else being equal, credit officer experience is negatively correlated with the provision of small loans, loans to young clients, and loans to clients with disabilities. Our qualitative analysis suggests that perceived client risk and preferences for increased time efficiency mainly drive more experienced credit officers’ relative neglect of more vulnerable clients. This drift appears to be reinforced by the industry’s incentive schemes. Therefore, credit officer incentives and training should be designed to prevent this mission drift, which is observed at the microfinance institution level but is actually initiated at the credit officer level. (shrink)

We draw on the phenomenon of caste-based discrimination in India and signaling theory to assess whether microfinance credit scores improve the odds of female micropreneurs from a lower caste receiving loans and whether visible business characteristics further improve the odds of receiving microfinance loans. In a sample of 3,144 female microfinance loan applicants at a female-focused microloan enterprise in India, females from a lower caste, relative to those from a higher caste, have lower odds of receiving loans (...) when their credit scores are below the mean. However, when females from a lower caste have credit scores higher than the mean, the odds of receiving a loan increase. The practical effect of size is small but meaningful. Loan applicants from a lower caste with a visible signal of business ability do not improve their chances of receiving a loan relative to those from a higher caste. (shrink)

Contributors examine the ethical issues surrounding microfinance, including questions about exploitation, human rights, and efforts to promote global justice.

The commercialization of microfinance brings formal financial institutions into the microfinance landscape, yet little is known about the forces that lead to this phenomenon. This paper is the first dedicated to this topic using a hand-collected dataset of 112 institutions from 34 countries covering the period from 2008 to 2012. Based on institutional theory and resource-based argument, we empirically assess the effects of institutional environment factors, including regulative, normative, and cognitive elements, as well as resource-based factors, including practice (...) model and multinational diversity, on the intensity of engagements. To do so, we define the roles as capital-related, product-related, and service delivery, and calculate engagement intensity using a scoring method which reflects an organization’s extent of presence in the microfinance value chain. The analysis takes the engaging location and engaging model into account. We find that the two logics together can explain such involvement. Legal compliance is identified as most relevant for domestic players, while resource-based factors are more relevant for overseas players. In addition to regression analysis, many cases are identified to support the arguments. (shrink)

The purpose of this article is to present and discuss the values and limits of microfinance within the context of poverty reduction, international development, and community empowerment. The main thesis is that microfinance requires a more complex strategy than simply the provision of credits. The development of financial capital depends on the increase in human capacity and social capital. Microfinance is revisited under the ethical lenses of global responsibility for alleviating poverty and developing community sustainability. Through a (...) critical review of the literature and case studies from the Philippines, the author suggests a value-based Vincentian approach to integrate microfinance into community empowerment. In connection with the main thesis the author argues that the achievement of economic self-reliance through microfinance is contingent upon the development of capacity building, social capital, and empowerment at the individual, collective, and systemic levels. (shrink)

A significant constraint for economic developmentEconomic developmentin developing countriesDeveloping countries is the financial sector’s inability to support small businessesSmall businesses, as most are informal. However, it is possible to find alternative or informal microcreditMicrocredit schemes that support families and small businesses in these contexts. In several cases, they constitute an ancestral traditionAncestral tradition. This study aims to provide an updated literature reviewLiterature reviewon informal microfinanceInformal microfinance schemes and summarise the main issues and arguments on this subject. It also presents (...) a less known case: the case of xitiqueXitique, an informal and traditional Mozambican communitarian microfinanceMicrofinance practice. Results show that traditional informal microfinanceInformal microfinance coexists with formal financial systems and exists worldwide in developing countriesDeveloping countries, often rooted in traditional and community practices that play economic and social roles. The Mozambican xitiqueXitique shares common patterns with informal collective microfinanceMicrofinance practices in other parts of the world. However, it has developed specificities in the context of informal markets. This study contributes to a deeper understanding of the theme in developing contexts and highlights the role played by informal microfinanceInformal microfinance as a part of a solidarity economySolidarity economyand its potential contribution to development. (shrink)

MicrofinanceMicrofinance programs are recognized as one of the world’s leading development programs, having achieved great success in alleviating poverty, reducing inequality and eliminating gender discrimination among the underprivileged population. The COVID-19 pandemicCovid-19 Pandemic posed enormous challenges for the microfinance sector globally. Several studies have been conducted to assess the effects of the COVID-19 pandemicCovid-19 Pandemic on the livelihoods of microcredit borrowers and the operational outcomes of microfinanceMicrofinance institutions (MFIs). However, these studies are inadequate and provide less comprehensive evidence. Therefore, (...) to obtain comprehensive evidence, this systematic review aimed to synthesize recent literature on the effects of the COVID-19 pandemicCovid-19 Pandemicon microcreditMicrocredit borrowers’ financial and non-financial outcomes and the operations of MFIsMicrofinance institutions (Mfls) in several nations and regions. A systematic search of four electronic databases generated 81 studies, from which 10 full-length original and reviewed articles and two working papers were selected for review by narrative analysis. These studies covered eight single countries and one cross-country of two global regions. This review documented that microfinance borrowers experienced a significant drop in their financial outcomes, such as average income, daily spending on essentials, savings, wealth accumulation and loan repaymentRepayment. The pandemic also severely threatened their food security and consumption, health, education and employmentEmploymentopportunitiesOpportunity. Moreover, MFIs’ regular operations, for example, credit recovery, credit demand, credit disbursement and physical counseling, were significantly disrupted. (shrink)

This chapter intends to contribute to the analysis of microfinanceMicrofinance effects on entrepreneurshipEntrepreneurshipand poverty alleviationPoverty alleviation through a bibliometric review of the existent literature, to understand the current state of microfinance research, as well as to contribute to the analysis of the influence of microfinanceMicrofinanceon entrepreneurshipEntrepreneurship, financial developmentFinancial development, economic growthEconomic growth, and poverty alleviationPoverty alleviation. Despite the extensive research on microfinance, no recent study has attempted to update the current state of the research regarding its influence on (...) the other subjects in analysis. This chapter describes the evolutional research studies published in the digital library ScopusScopus, between 2017 and 2020, and compares the results obtained over time. The research is concentrated on the bibliometric analysisBibliometric analysis in the ScopusScopus database, considering the keyword “microfinanceMicrofinance”, and also searching for the keywords “microfinance”, “entrepreneurship”, “financial and development”, “economic and growth”, and “poverty”. Based on the cutting-edge studies, we conclude that there is a lack of longitudinal data, heterogeneity among countries, lack of sociodemographic characteristics analysis, and little cross-country evidence, which would all be relevant issues to be explored empirically in the microfinanceMicrofinance literature. (shrink)

Crowdfunded microfinance provides financial resources to impoverished entrepreneurs across the globe based on online appeals describing the entrepreneur’s values and venture potential and is considered a key player in the ethical finance movement. Despite knowledge that the content of the appeals impacts funding success, little is known regarding the role of religious expression, which is common and consequential in socially-oriented contexts. We leverage role congruity theory to address a theoretical tension concerning the effects of religious expression on crowdfunded (...) class='Hi'>microfinance funding outcomes. Religious expression is associated with perceptions of trustworthiness, rule-following, and ethicality—qualities that would suggest an entrepreneur would likely avoid opportunist behavior and repay the loan. However, appeals to a higher power may be incongruent with the role of an entrepreneur to the extent that such expression communicates a lack of proactiveness and self-reliance. We use a two-study design to help resolve this tension. Our field study incorporating 253,130 loans from Kiva reveals that religious expression negatively influences funding, particularly for women. Our experiment using 1,795 individual loan assessments shows that the negative influence of religious expression is attenuated when individual lenders exhibit higher levels of religiosity. Post hoc analysis suggests campaigns can mitigate the negative impact of religious expression by being careful to also include aspects highlighting an entrepreneurial orientation. Overall, our work extends prior research suggesting that language tied to ethical or virtuous behaviors is generally not rewarded by lenders as using such language may make the applicant appear inconsistent with role of a stereotypical entrepreneur. (shrink)

Pakistan is a developing country and it has been showed remarkable development in many areas since its foundation in 1947. However, still some issues have not been handled properly, like poverty, corruption, load shedding, water crises etc. Apart from other issues, poverty is a big issue of the country and it can be observed more or less in every province. In this paper, we have analyzed the ground situation of district Ghotki, through surveys, which is considered last district of Sindh. (...) We tried to find the problems of poor people of district Ghotki, observed their general life style, discussed their issues and inquired about government’s role to provide the people with basic necessities of life. In this paper, mainly qualitative method is adopted to reach to best conclusion. However, partially quantitative style could also be observed, especially where concepts of Microfinance are discussed. We realized that around 40% people of the district need microfinance services and they are ready to welcome Islamic Microfinance banks, because people don’t want to opt interest based conventional microfinance services, and secondly, conventional microfinance banks don’t have capacity to cover vast area of the district. (shrink)

This article draws on resource‐based theory and the literature on strategic intent to develop a theoretical model that explains the concept of mission drift in microfinance institutions. We argue that the differential strategic intents of commercially oriented, for‐profit, and socially oriented nonprofit organizations drive the acquisition of disparate resources and capabilities, which in turn drives distinct performance outcomes, including a focus on different markets within the overall base of the pyramid. The article suggests that it is the dynamic aspects (...) of changing strategic intent and the consequent timing delays in the development of associated resources and capabilities that lead to various issues of mission drift. Finally, we suggest that cross‐sector alliances between for‐profit and nonprofit MFIs may benefit from the unique capabilities of both types of organizations and deliver the most and broadest impact on poverty alleviation in BOP markets. (shrink)

This book aims to bring new insights into the effectiveness of microfinance as a tool for boosting entrepreneurial activities that in turn enhance the capabilities of individuals living in extreme poverty across several dimensions of human development, especially in the current challenging times for both individuals and the microfinance industry. Theoretical contributions explore the interplay between classical microfinance models and entrepreneurial ecosystems as well as innovative microfinance models, such as the pass-through microlending model in the crowdfunding (...) context. Empirical contributions shed light to the interplay between microfinance and poverty, economic development, well-being and women’s empowerment. The book also considers responses to emerging challenges, such as the COVID-19 pandemic, and promoting Sustainable Development Goals (SDG) in the microfinance market, specifically focusing on eliminating extreme poverty (SDG1), promoting shared economic growth (SDG8), and reducing the inequalities among countries (SDG10) to ensure all people achieve prosperity. (shrink)

This entry focuses upon the current state of microlending activity, and particularly for-profit activity, with ethical analysis of such lending, particularly as it pertains to prospects for poverty alleviation and development for the global poor. Several specific events have lately altered the characteristics of microlending and the general assessments of its prospects: most notably the collapse of the for-profit microfinance market in Andhra Pradesh late in 2010 and research previously pursued within the same state of India that would greatly (...) reduce our estimation of the promise of microcredit for poverty alleviation. This brief piece of writing indicates, but can hardly serve to argue fully, two conclusions. First, that current views of microlending, for better or worse, will tend to promote economic exclusion of the poorest. Second, because the advantages and disadvantages of microlending for poverty alleviation and for women's empowerment have a great deal to do with the specific circumstances of lending, unpromising results found in some circumstances may be taken with a grain of salt. (Pre-review draft July 2016, for Robert W. Kolb, ed. The SAGE Encyclopedia of Business Ethics and Society: 2nd edition. Sage Publications. 2017. Corrected copies may be obtained from the author following publication, March 2017.). (shrink)

In recent years, in addition to financial and social objectives, the microfinance industry has started to look at its environmental bottom line. The objective of this paper is to identify why microfinance institutions decide to go green. Data was collected through a quantitative survey of 160 MFIs and qualitative semi-structured interviews of 23 MFIs’ top managers. Basing our analysis on the model of ecological responsiveness developed by Bansal and Roth :717–736, 2000), we discover that MFIs for which legitimation (...) is the dominant driver tend to adopt a defensive approach and set up more superficial negative strategies to appear green. In contrast, MFIs for which social responsibility is the dominant driver tend to be more proactive and innovative and develop adapted financial and non-financial services to promote environmentally friendly practices. (shrink)

Although microfinance organizations are generally considered as inherently ethical, recent events have challenged the legitimacy of the sector. High interest rates and the excessive profitability of some market leaders have raised the question of how to define a fair profit level for social enterprise. In this article, we construct a fair profit framework based on four dimensions: profitability, social mission, pricing, and surplus distribution. We then apply this framework using an empirical sample of 496 microfinance institutions. Results indicate (...) that satisfying all four criteria is a difficult, although not impossible, task. According to our framework, 24 MFIs emerge as true double bottom line organizations. These MFIs are characterized by higher outreach to women, lower portfolio risk, and higher productivity in high-density environments such as South Asia. We argue that excessive profits can be better understood relative to pricing, the outreach of the MFI, and organizational commitment to clients in the form of reduced interest rates. (shrink)

Microcredit, a non-profit lending approach that is often championed as a source of women’s inclusion and empowerment, has in the past decade been followed by microfinance, a forprofit sibling of a different temperament. Microfinance in India is now in turmoil, precipitated by legislation in the state of Andhra Pradesh, which has encouraged withholding of payment, which in turn has frozen the market. This paper considers one precipitating condition of the crisis: the remarkable, new, and developing burden of formal (...) economic debt that poor women in the state have only recently come to hold – debt that now surpasses one year’s family income, on average. The development of this lending sector follows upon innovation in lending to the poor of the global north over the past two decades, and the practices show noteworthy parallels. Both lending schemes have produced similar disproportionate burdens upon some low-status individuals within their respective economic orders, and both may exploit a vulnerability that is born of aspiration and produces great dysfunction for borrowers. This paper introduces the two lending schemes, sketches the parallels, and introduces the claim that ethical finance arrangements for the poor require attention to vulnerability, an under-utilized category in both liberal ethical theory and in finance. (shrink)

This study examines whether microfinance institutions (MFIs) that serve women borrowers at the base of the economic pyramid are likely to adopt a written code of positive organizational ethics (POE). Using econometric analysis of operational and economic data of a sample of MFIs from across the world, we find that two contextual factors—poverty level and lack of women’s empowerment—moderate the influence of an MFI’s percentage of women borrowers on the probability of the MFI having a POE code. MFIs that (...) serve more women borrowers are more likely to adopt a POE code, especially in negative contexts (where women borrowers face poverty and disempowerment and are therefore susceptible to abuse). This study provides evidence that MFIs can build positive ethical strength in negative contexts. (shrink)

The microfinance business model focuses largely on lending to the woman in the household, rather than the man. The belief is that women are more trustworthy borrowers than men, and that lending to women may have increased social impact. Yet in several cases, women do not have control over the loan backed business despite being the borrower of record. Such takeover of the business by the man constitutes an ethical violation. We find that high dependency ratios in the family (...) are correlates of such ethical violations. Further, we also find that ethical violations have a significant economic cost, consistent with prior scholarship in the family-business domain. While access to microfinance increases household welfare, this beneficial impact reduces by over 50% in the presence of an ethical violation. Our results suggest that microfinance lenders need to move beyond the traditional role of just being a lender to providing advice on issues like family planning, and money management, and enforcement, thus moving closer to the solidarity economy paradigm of integrating savings and credit into broader canvases of social relationships and social structures. (shrink)

Microfinance is the vanguard of financialization today. This is especially true in Colombia, where microfinance rivals any other type of formal credit. Entangled with Colombia’s micro-financialization is the phenomenon of microfinance corporations in joint ventures with Christian organizations that broker their microfinance programs. These faith-based corporations temper the surge in microfinance with ascetic discipline and the infusion of an entrepreneurial spirit. Economic discipline, say the microfinanciers, is required for what is referred to as ‘financial literacy’ (...) and ‘financial inclusion’ programs that instil a distinctly Christian corporate order. This article, based on 2 years of sustained fieldwork in Colombia, focuses on one such microfinance program run by a transnational Christian credit organization. With microfinance, souls are disciplined through debts and ideals of an ascetic prosperity. In the end, the article concludes that there is a Christian morality to financialized capitalism that is exercised at the level of the interior soul. (shrink)

Women are the primary microfinance client while microfinance serves as a vital mechanism for enhancing women's financial independence and potentially reducing intimate partner violence (IPV). This study examines the influence of financial independence, access, education, and income on the prevalence of IPV, encompassing physical, sexual, psychological, and economic violence. An online questionnaire was distributed to women aged over 18 who have got married or previously married and had accessed microcredit from financial institutions. Out of the responses, 250 met (...) the criteria for analysis. Binary logistic regression was employed to assess IPV as an outcome variable, defined by whether respondents had ever experienced violence in any of the four forms. The Wald test results reveal that education significantly impacts IPV prevalence, while financial access and independence do not. To address outlier data, a robust estimator was applied, confirming the significance of education as a determinant. These findings suggest that access to financial resources alone may be insufficient to alter power dynamics within intimate relationships. The study underscores the necessity of a multi-faceted approach to addressing IPV, integrating educational initiatives with financial empowerment strategies to create meaningful and sustainable change. (shrink)

Social enterprises in the microfinance industry need to adhere to both financial and social demands. Critics argue that there is a mission drift away from the social mission, and this has motivated the introduction of social rating agencies to strengthen the business ethics of microfinance institutions. Using a global dataset of 204 socially rated MFIs from 58 countries, we assess the factors that drive the social performance ratings of MFIs. Overall our results show that social ratings of MFIs (...) are significantly related to financial performance, greater outreach especially in rural areas, well-defined social objectives, staff commitment, service quality and an enhanced customer service. We observe that various rating agencies attach different importance to each of the social indicators. The public policy implication is that social rating agencies need to become more transparent, to reduce the information asymmetries between heterogenous socially motivated investors and the focal MFI. (shrink)

In recent decades, the microfinance sector’s significance has surged, with microfinance institutions (MFIs) emerging as vital tools in combating poverty in developing countries. Despite challenges, MFIs play a crucial role in offering economic support to vulnerable communities. Internal control stands out as a fundamental pillar for the stability, transparency, and sustainability of MFIs, essential for building public trust and mitigating risks. Robust internal control not only strengthens the financial position of these institutions but also instils confidence in investors, (...) clients, and stakeholders, facilitating the fulfilment of microfinance’s mission in socially and economically vulnerable areas.This paper focuses on the importance of internal control in Ecuador’s Popular and Solidarity Sector, a cornerstone in the country’s economic and social structure. This sector, evolving as a counterweight to conventional financial structures, provides accessible and community-oriented financing alternatives, fostering financial inclusion and community empowerment. Despite excellent microfinance models, traditional management mechanisms prove insufficient, prompting a need for a closer analysis of internal control in the face of evolving challenges. The chapter explores different internal control definitions, perspectives, and applications in financial sector institutions, emphasizing its insertion into microfinance in Ecuador. (shrink)

Sustainability and risk management in microfinance institutions (MFIs) have become increasingly important since the global financial crisis, with a continual emphasis on how risks are identified, quantified, reported, and controlled. Machine learning is increasing in business contexts, with numerous solutions already in place and a lot more being investigated. The application of machine learning has also been suggested as a project that could aid in the modernisation of risk management functions of MFIs on a large scale. The present study (...) employs a comprehensive bibliometric analysis to better understand machine learning applications for MFIs in the Indian context. Data collection from the Scopus database has been modified from 2012 to 2023 (until December 22, 2023). A dataset of 32 papers was collected from the Scopus database using a modified search. The R language and bibliometrix are used in this paper to perform bibliometric analysis and science mapping. According to the study's findings, there has been a substantial increase in publications from 2017 onwards. We specifically found an overall growing tendency since 2017, with minor changes in recent years; nonetheless, it has continued to rise in general. Overall, an increase in the average number of citations has been visible from 2018 to now. “Finance” and “machine learning” have occurred the maximum number of times (11 times). The University of Malaya has shown increased affiliations’ production over time from 2015 onwards. (shrink)

Microfinance is a preferred development tool in many developing countries around the world; however, the industry has been facing many challenges in recent years, including the attainment of financial sustainability. Therefore, this study is aimed at investigating the effect of employee turnover on the financial performance of microfinance institutions (MFIs). The study utilized unbalanced panel data of 1561 unique MFIs from 2010 to 2018. The data were then analyzed by conventional econometric techniques such as the pooled ordinary least (...) squares, random effects model, fixed effects model, Hausman–Taylor, and the two-step system generalized method of moments. Considering the linear relationship, it was discovered that employee turnover has a negative effect on the financial performance of MFIs. However, this relationship is dependent on the proxies of financial performance, legal status, location, profit orientation of the MFIs (for subsample analysis), and the technique(s)/model(s) employed in the analysis. Furthermore, the study did not find empirical evidence to support the quadratic relationship between employee turnover and the financial performance of MFIs. The outcome of this study advances important policy implications for concerned stakeholders. (shrink)

The study aimed to investigate the long-term effectLong-term effectof microfinanceMicrofinanceservices onWomen’s economic empowerment women’s economic empowermentEmpowermentin YemenYemen. Studies have investigated the short-term effect of microfinance services on women’s economic empowermentWomen’s economic empowerment but have ignored the long-term effectLong-term effect. A qualitative approach was adopted using multiple case studiesMultiple case studies. The case studies used formal interviewsInterviews and informal visits to collect data from women entrepreneursEntrepreneur as primary respondents to the study interviewsInterviews. Data were collected from 18 women entrepreneurs 5 (...) years after receiving their first loan and establishing their micro-sized businesses. Yemeni female entrepreneursEntrepreneur are usually denied owning their businesses, experience violence from partners and family members, are prone to business confiscation by their family members and relatives, and are denied decision-making on their own personal or business issues. The results of this research will help expose the problems faced by related stakeholders in addressing these challenges and finding solutions. This will encourage female entrepreneursEntrepreneur to play a critical role in contributing to the country’s economy. (shrink)

This book emerges within the context of the project “The role of microcreditMicrocreditin promoting financial and social inclusionSocial inclusion” (funded by FCT-Fundação para a Ciência e a Tecnologia, I.P., Project PTDC/EGE-OGE/31246/2017), with the purpose to shed light on the microfinanceMicrofinance and entrepreneurial finance puzzle, particularly on the outcomes of microfinance (and microcredit in particular) for its clients and the access to credit conditions they face, without overlooking the need to evaluate the financial sustainabilityFinancial sustainabilityof microfinance institutions (MFIs)Microfinance (...) institutions (Mfls) and their social mission. This book brings new insights into the effectiveness of microcreditMicrocredit as a tool for promoting entrepreneurial activities that may in turn empower individuals living in extreme poverty and vulnerable conditions across several dimensions of human development in the challenging times faced by both individuals and the microfinance industry. The book is organized in three parts, encompassing eighteen chapters. Part I “Financial system and Institutionalist approach” with seven chapters focuses the supply side of microfinance, namely the economic efficiencyEconomic efficiency, financial performanceFinancial performance, and sustainabilitySustainability of the market and MFIsMicrofinance institutions (Mfls). Part II “Poverty lending and welfarism approach” with five chapters emphasizes the analysis of the demand side of microfinanceMicrofinance, that is, on the microfinance effects on individuals, assessing microfinance outcomes in challenging contexts, namely their social outreachSocial outreach, and their impact assessment, mainly through qualitative approaches. Finally, Part III “Generalists studies” encapsulates five chapters offering a financial perspective on microfinanceMicrofinance access, credit conditions of financial intermediation, and microcredit performancePerformance. This book in turn contributes to academic research by stimulating investigations into new borders between microfinance and entrepreneurial finance and social entrepreneurshipEntrepreneurship, which remain rather scarce. In terms of societal impact, this book briefs a set of contributions that address the specific Sustainable Development GoalsSustainable Development Goals (SDG) in the microfinance market of eliminating extreme poverty (SDG1), promoting shared economic growthEconomic growth (SDG8), and reducing the inequalitiesInequality among countries (SDG10). (shrink)

Objective: This study aims to conduct a systematic literature reviewSystematic literature review (SLR) to identify the main factors of individuals’ empowermentEmpowerment from the perspective of microfinanceMicrofinance. Methodology/approach: To achieve the proposed objective, an SLR was conducted using the SCOPUSScopus database from 1950 to 2021. From a set of 690 papers, only 43 related to empowermentEmpowerment factors were considered and analyzed to segment the factors and their respective sub-factors according to their nature. Findings: This SLR documents that microfinance is a (...) tool for the economic, psychological, political, and social empowermentEmpowerment of people with business ideas, but without access to the traditional financial system. Also found are financial and non-financial/social factors of empowerment that must operate systematically to produce the desired effects. Practical implications: The results of this research can help microfinanceMicrofinance institutions (MFIs) and policy makers to determine the best strategy for individuals’ economic, psychological, political and social empowermentEmpowerment through the microfinance lens. Originality/value: It identifies a set of empowerment factors for needy individuals with entrepreneurial ideas who, through microfinanceMicrofinance, can find a mechanism to exit poverty. (shrink)

ABSTRACT:How does the state influence stakeholder legitimacy? And how does this process affect an industry’s ethical challenges? Stakeholder theory adopts a forward-looking perspective and seeks to understand how managers can address stakeholders’ claims to improve the firm’s ability to create value. Yet, existing work does not adequately address the role of the state in defining the stakeholder universe nor the implications this may have for subsequent ethical challenges managers face. This article develops a political stakeholder theory (political ST) by weaving (...) together the political economy, stakeholder theory, and legitimacy literatures. Political ST shows how state policies influence stakeholder legitimacy and, in turn, affect an industry’s ethical challenges. This article integrates the concept of agonism to address the perennial tension between markets and states and its implications for firms and their managers. Political ST is then applied to the case of microfinance, followed by a discussion of the contributions of this approach. (shrink)

We investigate the effect of national culture on women manager appointments. We argue that culture influences women manager appointments through their effects on managerial decision-making. Using firm-level data on 2,456 microfinance institutions (MFIs) across 61 countries, we document that fewer women managers are appointed in societies high on individualism and uncertainty avoidance. On the contrary, high power distance societies are positively associated with the appointment of women managers. We demonstrate that a greater number of women nonmanagers reduces (increases) the (...) appointment of women managers in high individualistic (uncertainty avoidance) cultures. Our findings challenge the “one-size-fit-all” approach adopted by policy makers around the world to increase women manager appointments. Our results are robust to endogeneity. (shrink)

While previous studies show that board gender diversity enhances financial performance in traditional financial institutions, little is known about its association with portfolio risk in microfinance institutions (MFIs). This study addresses this gap by examining the impact of board gender diversity on MFI portfolio risk from a critical mass perspective. Using data from the World Bank's MIX Market database covering 1184 MFIs across 98 countries between 2010 and 2018, we employ conventional econometric tools and techniques, including endogeneity‐corrected methods. The (...) results indicate that female board members reduce MFI credit risk. Furthermore, the study confirms that a critical mass of women is essential to realizing this effect. These findings remain robust across subsample analyses (e.g., income levels) and various endogeneity‐corrected techniques (e.g., Hausman–Taylor, generalized two‐stage least squares [G2SLS], and lagged models). The study highlights the importance of integrating gender quotas on MFI boards to minimize portfolio credit risk in the long term, offering valuable implications for policymakers and academics. (shrink)

Most scholarly interest in codes of ethics or conduct has focused on traditional companies. Little is known about the codes of social enterprises or hybrid organizations such as microfinance institutions. Our paper provides a comparative case study of the codes of a Mexican microfinance network and seven MFIs. Using the corporate integrity model, we analyze the content of MFIs’ codes compared to those of traditional organizations. We then examine to what extent some specific features of MFIs such as (...) their mission, target group, and applied credit methodologies, are factors that determine the content of their code. We find that MFIs’ codes, like those of traditional companies, include traditional stakeholder principles. Nevertheless, they put greater emphasis on ‘socially-oriented’ principles or on terms such as ‘people’ and ‘common good’. MFIs’ codes differ with respect to the items they include and exclude and the size of the covered sections. We also find that these codes attempt to address prevailing concerns in microfinance but rarely tackle two critical debates, namely levels of interest rates and of profitability. We finally argue that it is difficult to move toward a global code, owing to regional disparities and the variety of organizational models and missions. (shrink)

This paper develops an ethical framework for responsible finance and then applies it to Citigroup (Citi), a major financial actor in the microfinance sector, to see whether it meets with such obligations. The framework consists of two categories of responsibility. The first category is the special social responsibility of financial institutions; and the second is the fundamental principles of ethical behavior in financial services. From Citigroup’s microfinance model, scope of business, and multiple roles in the market, the company (...) seems to be fulfilling its responsibility in inclusive finance. However, judged in term of the principles of integrity, objectivity, fairness, professionalism, and diligence, it falls short of its ethical responsibility. In view of this shortcoming, Citigroup should recall its obligation to avoid conflicts of interest, to provide responsible advice, to protect clients from over-indebtedness, and most importantly, to act with integrity. (shrink)

As the debate over the value of microfinance institutions intensifies, it remains apparent that microfinance may, at the very least, be considered as one tool in the arsenal of the war against poverty in base of pyramid markets. Given the variety of actors in the microfinance arena, stakeholders have placed a relatively new emphasis on performance reporting for MFIs, allowing comparisons and identifications of performance gaps. One result of this scrutiny is an increased importance placed on MFIs’ (...) social performance, with an eye to understanding measures of MFIs’ intent, process, and results in the social realm—in addition to their financial sustainability. While a number of factors may explain differences in social performance, in this paper we take a close look at a particular factor that may have a positive relationship with social performance—that of an MFI’s religious affiliation or religiosity. Using archival data, we derived three sets of randomly paired samples, pairing religious MFIs with non-religious ones, and compared social performance indicators derived from the literature across the samples. We sought to understand whether religiously-affiliated MFIs would, in fact, demonstrate stronger social performance intent, wider social performance reach via service delivery processes, and better social performance outcomes in BoP markets. Statistical analysis provided preliminary evidence that religiously-affiliated MFIs display stronger social performance, suggesting new avenues for future research. (shrink)

This dissertation abstract and reflection essay presents the work of Dr. Darline Augustine. The dissertation examines variance in firm performance in the microfinance industry. The investigations unfold throughout six dissertation chapters, four of which are empirical. Each chapter illustrates the complex nature of the practice of corporate governance within microfinance firms, and the relationship of transparency to performance. In particular, the dissertation illustrates the influence of firm-level transparency—a proxy for good practice in corporate governance—and positive firm performance. The (...) chapters focus primarily on financial performance and, and to a lesser extent, social performance is also examined. This extended abstract explains the research question, setting, and methods. The reflection essay in the appendix discusses the author’s journey in the research process as a junior scholar. (shrink)

An accessible analysis of the global expansion of financial markets in poor communities, incorporating the latest thinking and evidence.

Ce document présente les expériences des personnes handicapées physiques dans l’accès aux prêts de microfinance. La microfinance est apparue comme un outil pour éradiquer la pauvreté et autonomiser les pauvres; cependant, y accéder est difficile pour de nombreuses personnes ayant un handicap physique. Cette étude qualitative a été menée par le biais d’entretiens approfondis semi-structurés avec vingt personnes handicapées physiques au Bangladesh pour explorer leurs points de vue sur les problèmes auxquels elles sont confrontées pour accéder à la (...) microfinance. Les données ont été collectées à la fois dans des zones urbaines et rurales et auprès de participants masculins et féminins. S’appuyant sur le modèle social du handicap, cette étude constate que les personnes handicapées physiques subissent une exclusion, une stigmatisation et des obstacles importants dans l’accès à la microfinance. Dans de nombreux cas, malgré les efforts des institutions de microfinance, le crédit n’est pas disponible pour de nombreuses personnes handicapées physiques, car elles subissent un comportement négatif et hostile de la part du personnel de la microfinance et des conditions de crédit inaccessibles. De plus, les personnes handicapées physiques ont moins de possibilités d’accéder à des services autres que le crédit, tels que l’épargne, l’assurance, la formation et les mécanismes de plainte. Pour relever ces défis, les institutions de microfinance doivent élaborer des réformes institutionnelles solides et adaptées aux personnes handicapées. Les personnes handicapées devraient être activement impliquées dans le processus d’élaboration des politiques. Cette étude partagera non seulement les expériences des personnes handicapées physiques dans le contexte des pays du Sud, mais fournira également des informations qui pourraient être utiles pour comprendre les défis auxquels d’autres personnes handicapées dans différents pays sont confrontées en termes d’inclusion financière. (shrink)

Le but de cet article est d’analyser l’état actuel de la recherche sur la discrimination des personnes handicapées par rapport à l’accès à la microfinance. Il soutient que la littérature existante suggère que les personnes handicapées font face à une indéniable discrimination dans l’accès à la microfinance (Labie et al., 2015). Les comportements des employés au sein des institutions de micro-finance (IMF) sont une des principales sources de discrimination à l’encontre des personnes handicapées, ce qui compromet leur qualité (...) de vie (Cramm & Finkenflugel, 2008 ; Mersland, Bwire & Mukasa, 2009; Labie et al., 2015). De plus, des études conduites par Beisland & Mersland (2012) and Nuwagaba et al. (2012) ont démontré que les personnes handicapées ont tendance à ne pas postuler pour des prêts en microfinance car elles anticipent un refus. Les personnes handicapées font face à une “discrimination basée sur le goût” (préjudice) et une “discrimination statistique” (fondée sur l’appartenance sociale). La réduction de la discrimination requiert des interventions qui visent à induire des réformes institutionnelles, à modifier les mentalités des employés et des personnes handicapées, et à intégrer des adaptations appropriées dans la gestion journalière des opérations de microfinance. Pour conclure, je recommande que les régulateurs dans le secteur la microfinance identifient les champs de discrimination qui compromettent présentement l’accès des personnes handicapées à la microfinance. (shrink)

Due to the nature of lending practices and support services offered to the poor in developing countries, portfolio risk is a growing concern for the microfinance industry. Though previous research highlights the importance of risk for microfinance organizations, not much is known about how microfinance organizations can mitigate risks incurred from providing loans to the poor in developing countries. Further, though many microfinance organizations practice corporate social responsibility to help create economic and social wealth in developing (...) countries, the impact of such CSR practices remains an underdeveloped area of inquiry. We use a normative ethics lens to develop an ethics-based CSR theory that differentiates between three forms of ethics-based CSR—virtue, consequentialist, and deontological. We argue that while all three forms can help mitigate risk, virtue ethics-based CSR is potentially the most useful form of CSR toward mitigating microfinance portfolio risk. We test our hypotheses using a sample of microfinance organizations from across the world. Our findings suggest that virtue ethics-based CSR is not just an important philosophical paradigm; it can actually help mitigate microfinance portfolio risk when implemented in practice. (shrink)

Microfinance institutions (MFIs)Microfinance institutions (Mfls) constantly face delays in their collections and in many cases, not receiving money or loans that were lent within the stipulated period. Most of these micro lending was arranged without collaterals and thus delinquencyDelinquency, which is a delay in payment initially and later a loan defaultDefault, has become a propensity in micro financing. This study explores factors that lead to delinquency and categorizes them in internal, external, and natural. Internal factors include business type, (...) interest rate, loan size, inadequate appraisal process, and extent of monitoring and mismanagement of loans by the MFIsMicrofinance institutions (Mfls). External factorsInternal factors loan delinquency relate to legislative issues, geopolitical and economic situations, while natural factorsNatural factors arise due to weather and climate changeClimate change that affect borrowers’ agricultural products and services, production and supply chains, natural disastersNatural disasters, and the borrowers’ poor health or sudden death. We conduct a comprehensive literature reviewLiterature review that led to causes and factors of loan delinquencyDelinquency. (shrink)

Why do some organizations suffer more than others in the wake of an industry scandal? Although ex-ante greater opportunistic behavior of organizations is one factor, we argue that ex-post greater targeting of organizations is another important factor. Using the context of microfinance organizations (MFOs), we examine why the financial sustainability of for-profit and non-profit organizations may be heterogeneously affected following a scandal. Leveraging the 2010 Indian microfinance scandal as our research setting and analyzing longitudinal data, we find a (...) substantial decline in the financial sustainability of Indian MFOs relative to their counterparts within the rest of South Asia. Compared to Indian non-profit MFOs, Indian for-profit MFOs suffered substantially more. Intriguingly, these results hold not only in the full sample, but also in the matched sample of comparable for-profit and non-profit MFOs. Further analysis reveals that the adverse impact on for-profit MFOs was much bigger in the scandal’s epicenter. Our findings suggest that some organizations may suffer more than others not only due to their engagement in actual malfeasance but also due to their greater targeting by the social control agents. We discuss the implications of this study for social enterprise managers and policymakers. (shrink)