Performance and corporate governance in microfinance institutions

We trace the relationship between firm performance and corporate governance in microfinance institutions (MFI) utilising a self constructed global data set on MFIs, collected from third-party rating agencies. We study the effect of board characteristics, ownership type, competition and regulation on the MFI's outreach to poor clients and its financial performance. The results show that split roles of CEO and chairman, a female CEO, and competition are important explanations. Larger board size decreases the average loan size while individual guaranteed loan increases it. No difference between nonprofit organisations and shareholder firms in financial performance and outreach is found.Microfinance; MFI; corporate governance; performance

Performance and corporate governance in microfinance institutions

We trace the relationship between firm performance and corporate governance in microfinance institutions (MFI) utilising a self constructed global data set on MFIs, collected from third-party rating agencies. We study the effect of board characteristics, ownership type, competition and regulation on the MFI's outreach to poor clients and its financial performance. The results show that split roles of CEO and chairman, a female CEO, and competition are important explanations. Larger board size decreases the average loan size while individual guaranteed loan increases it. No difference between nonprofit organisations and shareholder firms in financial performance and outreach is found.Microfinance organizations; governance; performance

Microcredit for self-employed disabled persons in developing countries

Microcredit has become a popular instrument to promote economic empowerment among poor entrepreneurs, and is increasingly being recommended to improve economic rehabilitation among persons with disabilities. However, the majority of the advocates of microcredit for persons with disabilities seem not to be informed on the involved “rules of the game”. At the same time the microfinance community lacks information on disability issues. In this report we aim on closing the gap in knowledge and culture between the disability- and the microfinance communities. We apply resource based theory to analyze when microcredit for disabled persons is an appropriate tool and when it is not. We argue that asymmetric information between microfinance institutions and the disabled population is probably the main hindrance for increased penetration of microcredit services to disabled persons. We recommend disabled entrepreneurs with the necesarry resource base to be included as regular clients in mainstream MFIs or as regular members in self helping microfinance systems like ROSCAs. We provide lists of recommendations that are both easy to understand and to apply for MFIs, DPOs and donors. Due to the lack of theoretical and empirical knowledge available we see this report as a starting point and we advocate for increased research efforts within this field.Microfinance; disability; MFIs; donors; DPOs

Myths in microfinance

Microfinance, the provision of financial services to the poor, is high on the public agenda. We discuss and evaluate three myths regarding microfinance based on new data from rated microfinance institutions (MFIs). The first myth is that an efficient MFI needs to be shareholder owned; second that its governance should first and foremost address the potential conflict between owners and managers; and third that MFIs are drifting away from their poorer customers towards serving the wealthier. The data do not support any of these myths. We conclude that microfinance is a viable business model.Myths in microfinanc

Performance and governance in microfinance institutions

We examine the relationship between firm performance and corporate governance in microfinance institutions (MFI) using a self-constructed global dataset on MFIs collected from third-party rating agencies. Using random effects panel data estimations, we study the effects of board and CEO characteristics, firm ownership type, customer-firm relationship, and competition and regulation on an MFI’s financial performance and outreach to poor clients. We find that financial performance improves with local rather than international directors, an internal board auditor, and a female CEO. The number of credit clients increase with CEO/chairman duality. Outreach is lower in the case of lending to individuals than in the case of group lending. We find no difference between non-profit organisations and shareholder firms in financial performance and outreach, and we find that bank regulation has no effect. The results underline the need for an industry specific approach to MFI governance

Mikrofinans : fra helt til kjeltring

Motivert av den senere tids kritikk av mikrofinans, blant annet slik den fremkom i en dokumentar kalt «Fanget i mikrogjeld» som ble sendt på NRK i november 2010, undersøker vi i denne artikkelen hvorvidt mikrofinanstilbyderne (MFIene) krever uforholdsmessig høye renter, hvorvidt profittjaget er økende, og om MFIene beveger seg bort fra de fattige kundesegmentene. Våre funn indikerer at snarere enn å være en bransje med høy fortjeneste så sliter bransjen med høye kostnader og lav inntjening. Vi finner også at fokuset på å betjene fattige kunder ikke endres over tid. Mikrofinans er en bransje i sterk vekst. Hvorvidt økt tilgang på mikrofinans fører til en fastlåst økonomi med lite innovasjon, lav produktivitet og stor uformell sektor, er problemstillinger som i svært liten grad er diskutert i litteraturen, men som bør gjøres til gjenstand for flere studier i fremtiden. For egen del føler vi oss rimelig trygge på at finansiell intermediasjon, altså at sparepenger lokalt blir gjort tilgjengelig som utlån lokalt, har noe for seg også for fattige mennesker. Men et entydig fokus på å nå de fattigste bør erstattes av et kombinert fokus hvor også små og mellomstore bedrifter bør bli betjent av MFIer. Mulighetene for innovasjon og økt produktivitet er tross alt bedre i små og mellomstore bedrifter enn i mikrobedrifter

Microfinance mission drift?

Claims have been made that microfinance institutions (MFIs) experience mission drift as they increasingly cater to customers who are better off than their original customers. We investigate mission drift using average loan size as a main proxy and the MFIs lending methodology, main market, and gender bias as further mission drift measures. We employ a large data set of rated, multi-country MFIs spanning 11 years, and perform panel data estimations with instruments. We find that the average loan size has not increased in the industry as a whole, nor is there a tendency toward more individual loans or a higher proportion of lending to urban costumers. Regressions show that an increase in average profit and average cost tends to increase average loan and the other drift measures. More focus should be given to cost efficiency in the MFI

The agenda and relevance of recent research in Microfinance

This paper studies recent research efforts in the field of microfinance. Two questions guide the study: What is the agenda of recent research efforts? And, for who is the research relevant? As for the agenda the “yin and yang” of microfinance; impact and sustainability, continue to influence most research efforts. The study illustrates that microfinance attracts mainly the interest of development researchers and journals. Accordingly the researchers seem mainly to interact with the donors’ and practitioners’ communities. The research produced seems to be relevant for them and less so for the governmental and banking communities. The paper concludes proposing the design of a new research agenda, this time in cooperation with the banking community

The impact of international influence on microbanks’ performance: A global survey

Microbanks serve micro-enterprises and poor people with financial services. This study examines how various aspects of international influence affect microbanks’ financial and social performance. Grounded in agency theory and resource-based theory, we argue that there are multiple ways that the internationalization of microbanks might affect performance. Specifically, we argue that one can distinguish between four sources of such internationalization effects; international initiator, international directorship, international debt, and international affiliation/networks. This study utilizes data from 379 microbanks in 73 developing countries – assessed between 2001 and 2008. We find that the internationalization of microbanks to a large extend enhances social performance, but does not enhance financial performance

The cost of ownership in microfinance organization

This article analyses the cost of ownership in microfinance organizations. We specifically compare the ownership-cost of Shareholders Firms (SHFs), Non Profit Organizations (NPOs) and Cooperatives (COOPs). A paradoxical situation motivates us: Most providers of microfinance, both historically and today, are NPOs or COOPs, while several policy papers advocate SHFs. Based on an extension of Hansmann’s (1996) economic theory of ownership we propose that cost variables related to market contracting of microfinance services favor NPOs and COOPs, whereas most cost variables related to the practice of ownership favor SHFs. We conclude that in severe imperfect markets, where most microfinance organizations operate, NPOs and COOPs are still needed