Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization and Microfinance Institutions

Abstract

We examine the heterogeneous effects of globalization on the interest rate setting by microfinance institutions (MFIs) around the world. We consider MFIs as a mechanism to overcome the institutional void of credit for small entrepreneurs in developing and emerging economies. Using a large global panel of MFIs from 119 countries, we find that social globalization that embraces egalitarian institutions on average reduces MFIs' interest rates. In contrast, economic globalization that embraces neoliberal institutions on average increases MFIs' interest rates. Moreover, the proportions of female borrowers and of poorer borrowers negatively moderate the relationship between social globalization and MFI interest rate, and positively moderate the relationship between economic globalization and MFI interest rate. This paper contributes to understanding how globalization processes can both ameliorate and exacerbate challenges of institutional voids in emerging and developing economies.

Analysis of Informal Microfinance Institutions Structures in Relation to Performance in Tharaka South Subcounty, Kenya

“…Published by ECSDEV, Via dei Fiori, 34, 00172, Rome, Italy http://ecsdev.org Microfinance helps address poverty and foster inclusive growth by providing microcredit which enables low income people to initiate income generating activities, purchase capital assets and cope with economic shocks (Liang et al 2014).…”

Microfinance Interest Rate Puzzle: Price Rationing or Panic Pricing?

“…Financial and social performance information is obtained from the MIX database . MIX is the premier source for objective, qualified, and relevant microfinance performance data and analysis, and its data are used widely in microfinance research (Armendáriz and Morduch, ; Liang et al ., ; Sun and Im, ). MIX includes approximately 2000 MFIs operating in 110 countries, which represents an estimated 80% of all known microfinance clients worldwide and equates to roughly $50 billion in loans per year for the last 5 years.…”