Technological Change and Innovations in Microfinance Institutions: What Matters?

Abstract

<jats:p> Usage of technology that serves to improve organizational efficiency among financial service providers has substantially increased during the past decade. Similarly, a large number of microfinance institutions (MFIs) have incorporated technological innovation in their operations to provide clients with better financial services. To understand the determinants of technological change in MFIs, this study investigated various factors, including sources of funds, institutional characteristics (IC) and macroeconomic factors. Using longitudinal data (2009–2014) from the microfinance industry in Bangladesh, this study estimated the Malmquist Productivity Index (non-parametric) to decompose the technological change at the first stage. This index was then used as a dependent variable in the second stage to regress against certain independent variables. Overall, it was found that the microfinance industry in Bangladesh observed regression in technological change; however, technological change could be improved by promoting peer borrowing among MFIs. Apart from that, greater autonomy through decentralization of MFI branches could also stimulate technological progress. Interestingly, MFIs located in Dhaka have experienced better technological progress than MFIs located in other parts of the country, which signifies the importance of location. Additionally, the findings also revealed a gap in transfer of technological knowledge from commercial banks to the MFIs that they fund. </jats:p>

Microfinance's digital transformation for sustainable inclusion

“…The authors follow qualitative designed research to evaluate the microfinance sector in Vietnam and suggest instructions and recommendations for the digital transformation of the Vietnamese MFIs. In this sense of digital transformation as well, Mia (2020) By analogy with the surveys related to the operational efficiency of banks mentioned above, we assume that the integration of FinTech services will have the same effect on the operational efficiency of MFIs. Thus, the first hypothesis will be as follows:…”

“…They studied the evolution of the Indian microfinance industry as well as few relevant studies about its technological transformation -IT improves the processes of MFIs and ensures enhanced outreach more costefficiently -The only barrier is the resistance of the Indian rural population to embrace the technological change Dang and Quynh Vu (2020) The authors followed qualitative designed research to evaluate the microfinance sector in Vietnam and to study its technological transformation -The introduction of FinTech to the microfinance industry leads to better and fast-delivered services, safer and easier access, and most importantly, lower costs. -Technological innovation enhanced the financial intermediation's efficiency in the US mortgage market with faster processing (nearly 20% faster than traditional lenders) -This speed does not come at the expense of higher default rates (their default rates are about 25% lower compared to those of traditional lenders) -There is no evidence about the prioritization of marginalized populations Mia (2020) The author selected a sample of 169 MFIs from Bangladesh over 2009-2014…”

“…The authors follow qualitative designed research to evaluate the microfinance sector in Vietnam and suggest instructions and recommendations for the digital transformation of the Vietnamese MFIs. In this sense of digital transformation as well, Mia (2020) empirically conducts a non-parametric investigation where she studies the determinant factors of the introduction of technological change and innovation in Bangladeshi MFIs. The author estimates the Malmquist Productivity Index to distinguish the technical change among the studied MFIs over the 2009–2014 period.…”

Systematic review of institutional innovation literature: towards a multi-level management model

“…Earlier works stress the role of agents of change (Ebegbulem 1974 ; Pred 1978 ) while more recent expositions give prominence to the implementation of ambitious projects (Williams 2002 ; Chien 2007 ), and transparent public–private partnerships (Zhang and Tan 2019 ; Oppong and Andrews 2020 ; Yu 2020 ). Similarly, the nature of change varies among scholars with debates that highlight differing emphasis on socioeconomic and political change (Halpern 2005 ), change in the new power topology (Clapp et al 2016 ), technological change (Mia 2020 ; Perry 2021 ), managerial change (Parrado 2008 ), and technical change for economic development and knowledge acquisition processes (Oyelaran-Oyeyinka 2006 ; Ruttan 2006 ). Some studies argue that reform for institutional improvement is crucial, not only to boost quality levels of outputs (Azadegan et al 2013 ) but also procedurally to ensure quality exchanges within cooperative networks (Brinckmann 1998 ).…”

Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence

“…As an instance, studies have discovered the effect of macroeconomic factors (e.g., GDP growth, financial sector development, inflation, institutional quality, etc.) on the financial performance (Imai et al., 2011; Schulte & Winkler, 2019), social outreach (Awaworyi Churchill, 2019a; Mia & Lee, 2017) and innovation (Babu, 2016; Mia, 2020b; Mustafa et al., 2018) of MFIs. As such, the assessment of borrowers’ turnover would be incomplete without due consideration of the macroeconomic factors.…”