Organizational and legal institutions, and the performance of microfinance institutions as hybrid entities

Abstract

Purpose Microfinance institutions (MFIs) play an important role in economic development, with the dual objectives of social outreach and financial self-sufficiency. The purpose of this study is to examine the influence of organizational structure and variations in legal systems on the MFI dual performance goals. Design/methodology/approach Using a sample that includes 1,518 MFIs from 105 different countries over a period of 20 years, this study analyzes the data by applying a model that includes six categories of organizational structures and variations of legal systems, including both civil and common law, with accounting performance measures for the dependent variables. Findings The analyses provide robust results indicating that MFIs structured as non-governmental organizations (NGOs) have better social outreach than all other types of MFIs and exhibit better financial performance than MFIs registered as commercial banks or credit unions. Legal systems also played a role in MFI effectiveness. Research limitations/implications Given the increasing importance of MFIs on economic development globally, this study has relevance on how the impact of MFI structural characteristics and macro-level influences on their dual performance criteria can be translated into management approaches and governance policies that can increase the effectiveness of these dual (i.e. social and financial) goals. Originality/value This study is more comprehensive than prior research in addressing the influence of organizational structures of MFIs and legal systems on MFI dual mission, namely, its financial performance and social outreach, thereby increasing our understanding of policy implications in sustaining the MFI’s developmental role.

The impact of employee turnover on the financial performance of microfinance institutions: A global evidence

“…We represented the possible threat of employee turnover to the financial performance of MFIs by considering two proxy variables—return on assets ( ROA ) and operational self‐sufficiency ( OSS ). While a wide range of variables that can be used to measure the financial performance of MFIs exists, we have relied on common measures based on recent works of literature such as ROA (Gbandi et al, 2021; Meyer, 2019; Mumi et al, 2020) and OSS (Bayai & Ikhide, 2018; Gbandi et al, 2021; Meyer, 2019; Mumi et al, 2020; Navin & Sinha, 2021).…”

“…Nevertheless, the outcome variables in this study could also be influenced by time-invariant variables such as the legal status (LS) and profit status (PS) of MFIs. The outcome of LS on the financial performance of MFIs can vary due to differences in regulatory costs (Mumi et al, 2020). For example, banks and rural banks are often subjected to prudent regulation, while NGO-MFIs can enjoy laxity in regulation.…”

Social media adoption through product diversification and market diversification: The dynamic capabilities perspective

“…One possible reason for this is that firms with many products and services may focus on strengthening their R&D activities rather than their marketing activities. Referring to the dynamic capabilities perspective, firms may choose to allocate their resources to cope with external factors and try to become more agile in response to various changes (Eisenhardt & Martin, 2000;Mumi, Joseph, & Quayes, 2020;Ngammoh et al, 2023). Therefore, social media, which emphasizes enhanced communication, may be deemed unnecessary at this stage.…”

Strategic alliances and social performance of microfinance institutions in Indonesia

“…The depth of outreach refers to the type or profile of clients an MFIs served, that is, the smaller the average amount of credit offered, the better because it reaches people experiencing poverty (Cull et al, 2018; Hossain et al, 2020). The two most widely used measures of outreach depth are the ratio of active female borrowers to the total number of active MFI borrowers, and the average loan size compared to the per capita percentage of countries in which MFIs operate (Hermes & Hudon, 2018; Mumi et al, 2020). The smaller the ratio of average loan comparison to per capita income, the poorer the customers MFIs served (Adusei, 2021).…”

“…High‐performing MFIs are categorized as organizations with dual returns of social and financial performance (Godfroid, 2019; Mumi et al, 2020). MFI's social and financial performance is important (Caballero‐montes & Labie, 2021).…”