The purpose of this paper is to study the factors determining the performance (organizational, social, and financial) of conventional and Islamic microfinance institutions and their impact on maintaining the sustainability of these institutions. A panel data on a sample of 333 conventional and 49 Islamic microfinance institutions (MFIs) between 1996 and 2012 of six different regions is used for this purpose and analyzes using the simple linear regression technique. The results show that the sustainability measered by operational autonomy (OSS) of Islamic MFIs (IMFIs) is sensitive to their social performance (SP), while the sustainability of Conventional MFIs (CMFIs) is sustained by their Financial Performance (FP) measured by return on assets (ROA). Thus, these latter seem to deviate from the main social objective focusing more on profitability. Indeed, this judgement is confirmed when the results also showed that their (CMFIs) FP is positively affected by the quality of credit portfolios which reveals the category of the targeted clients (the poorest of the poor are abandoned). On the contrary, FP of IMFIs seems to be mainly supported by their specific source of funding through the islamic financial contracts where the results revealed that their profitabilty is positively affected by their capital structure. Moreover, the results show that the organizational performance positively affects the sustainability of the two categories of MFIs.

Purpose The purpose of this paper is to investigate the impact of loan officers’ overconfidence on risk-taking decision and solvency performance measured by z-scores in the context of Islamic and conventional microfinance institutions (MFIs). Design/methodology/approach A random effect generalized least square regression was applied to examine the effect of overconfidence on credit risk-taking. The data set covers 326 conventional MFIs and 57 Islamic MFIs in six different regions over the period of 2005–2015. Findings Overconfidence proxies have shown through high loan growth, low-interest margin and loan loss provision reveal negative consequences on risk-exposures for both MFIs averagely. The loan officer’s overconfidence is significantly and positively related to the risk-taking decision, and thus, a lower loan portfolio quality. Besides, loan officers’ risk-taking behaviour harms these institutions’ solvency performance. Originality/value This paper makes an initial attempt to evaluate the effect of overconfidence behavioural bias on risk-taking decisions and its implication on the MFIs solvency and sustainability.

PurposeThe purpose of this paper was to investigate the impact of credit risk-taking on financial and social efficiency and examine the relationship between credit risk, capital structure and efficiency in the context of Islamic microfinance institutions (MFIs) compared to their conventional counterparts.Design/methodology/approachThe stochastic frontier approach was used to estimate the financial and social efficiency scores, in a first step. In a second step, the impact of risk-taking on efficiency was evaluated. The authors also took into account the moderating role of capital structure in this effect using the fixed and random effects generalized least squares (GLS) with a first-order autoregressive disturbance. The used dataset covers 326 conventional MFIs and 57 Islamic MFIs in six different regions of the world over the period of 2005–2015.FindingsThe overall average efficiency scores are less than 50%, where CMFIs could have produced their outputs using 48% of their actual inputs. IMFIs record the lowest financial (cost) efficiency that is equal to 28% on average. The estimation results also reveal a negative impact of nonperforming loan on financial and social efficiency. Finally, the moderating effect of leverage funding on the relationship between credit risk-taking and financial efficiency was confirmed in CMFIs. However, leverage seems to moderate the effect of risk-taking behavior on social efficiency for IMFIs.Originality/valueThis paper makes an initial attempt to evaluate the effect of risk-taking decision and its implication on efficiency and MFIs' sustainability. Besides, it takes into consideration the role played by the mode of governance through the ownership structure. In addition, this research study sheds light on the importance of the financial support for the development and sustainability of these institutions, which in return, contributes to a sustainable economic development.