The Ethical Crisis in Microfinance: Issues, Findings, and Implications

Hudon, Marek; Sandberg, Joakim

doi:10.5840/beq201323440

Cited by 117 publications

(96 citation statements)

References 83 publications

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“…Likewise, larger loan sizes will reduce MFIs' costs and enable them to lower their prices to clients (Rosenberg et al, 2013). In any case, clients eventually benefit from lower interest rates, which is considered one of the major challenges in the industry (Hudon and Sandberg, 2013); for now we cannot discern whether new or existing clients have benefited most from the decline in interest rates.…”

Section: Discussion Of the Resultsmentioning

confidence: 96%

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

et al. 2017

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Microfinance, which pledges to provide financial services to people without access to banking, is chiefly run by non-governmental organizations (NGOs). Little is known about the extent to which the transformation of these NGOs into shareholder-owned and, most often, regulated firms affects the way microfinance institutions (MFIs) conduct their business. By applying the event study methodology to 66 MFIs that have transformed, we quantify the effect that transformation has on the MFIs' business models. Our results suggest that portfolio yield is driven down by 3.9 percentage points due to transformation, indicating that clients get more favorable interest rates. At the same time, MFIs are able to significantly cut down their operational expenses, of which 1.1 percentage points can be attributed to transformation. Other findings include a steep increase in commercial debt leverage and deposits, a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size. Profitability goes down in the short and medium term, while return on equity is driven up in the medium to long run. By exploiting within-MFI data, our approach goes beyond previous studies that mainly relied on between-MFI data. Overall, the results suggest that transformed MFIs become an attractive environment for investors, potentially encouraging a more profit-seeking behavior among transformed MFIs. Acknowledgements.We thank Victoria van Lennep and Li Yang for research assistance in data gathering data. We also AbstractMicrofinance, which pledges to provide financial services to people without access to banking, is chiefly run by non-governmental organizations (NGOs). Little is known about the extent to which the transformation of these NGOs into shareholder-owned and, most often, regulated firms affects the way microfinance institutions (MFIs) conduct their business. By applying the event study methodology to 66 MFIs that have transformed, we quantify the effect that transformation has on the MFIs' business models. Our results suggest that portfolio yield is driven down by 3.9 percentage points due to transformation, indicating that clients get more favorable interest rates. At the same time, MFIs are able to significantly cut down their operational expenses, of which 1.1 percentage points can be attributed to transformation. Other findings include a steep increase in commercial debt leverage and deposits, a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size.Profitability goes down in the short and medium term, while return on equity is driven up in the medium to long run. By exploiting within-MFI data, our approach goes beyond previous studies that mainly relied on between-MFI data. Overall, the results suggest that transformed MFIs become an attractive environment for investors, potentially encouraging a more profit-seeking behavior among transformed MFIs.Word count: 210

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Section: Discussion Of the Resultsmentioning

confidence: 96%

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

et al. 2017

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“…MFIs (Hudon and Sandberg, 2013). If the aim of the French regulator is to segment the credit market, then co-financing arrangements should be prohibited.…”

Section: Resultsmentioning

confidence: 99%

Women's Access to Credit in France: How Microfinance Institutions Import Disparate Treatment from Banks

Cozarenco

Szafarz

2014

SSRN Journal

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This paper compares the loans granted to male and female entrepreneurs by a French microfinance institution (MFI). The sample period is split in two: before and after the MFI implemented France's regulatory EUR 10,000 loan ceiling. In the first period, the MFI does not co-finance projects with mainstream banks and loan size is gender-insensitive. In the second period, the MFI does co-finance above-ceiling projects with mainstream banks, and we observe a gender gap in loan size. The results suggest that co-financing leads the originally genderneutral MFI to import disparate treatment from mainstream banks.

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“…and consigning borrowers to a debt trap (Hudon & Sandberg, 2013). The Andhra Pradesh crisis in India in 2010 further tarnished microfinance's standing in the public eye, when it was claimed that an MFI client had committed suicide for not being able to meet repayment obligations.…”

Section: Introductionmentioning

confidence: 99%

Female Leaders and Financial Inclusion. Evidence from Microfinance Institutions

2016

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This research advances the hypothesis that female leaders -chief executive officers (CEOs), chairs, and directors -of a microfinance institution (MFI) give more priority to the poorest families in loan provision than male leaders do. We differentiate between a depth and a width dimension of financial inclusion. The data set is a unique global panel of MFIs collected from MFI raters' reports. Our sample is also unique in the sense that about one-third of all MFIs have a female CEO. The problem of endogeneity for the female leader is resolved by running Heckman's two-step endogenous dummy variable estimation with an instrument for the female leader. We find evidence of greater depth financial inclusion (smaller average loans, more gender bias) with a female leader but not for width financial inclusion (credit client growth). Female leaders exhibit greater altruism and greater competition avoidance but not greater risk aversion than male peers. ABSTRACTThis research advances the hypothesis that female leaders -chief executive officers (CEOs), chairs, and directors -of a microfinance institution (MFI) give more priority to the poorest families in loan provision than male leaders do. We differentiate between a depth and a width dimension of financial inclusion. The data set is a unique global panel of MFIs collected from MFI raters' reports. Our sample is also unique in the sense that about one-third of all MFIs have a female CEO. The problem of endogeneity for the female leader is resolved by running Heckman's two-step endogenous dummy variable estimation with an instrument for the female leader. We find evidence of greater depth financial inclusion (smaller average loans, more gender bias) with a female leader but not for width financial inclusion (credit client growth). Female leaders exhibit greater altruism and greater competition avoidance but not greater risk aversion than male peers. JEL codes: G34; M12; M14

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The Ethical Crisis in Microfinance: Issues, Findings, and Implications

Cited by 117 publications

References 83 publications

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?

Women's Access to Credit in France: How Microfinance Institutions Import Disparate Treatment from Banks

Female Leaders and Financial Inclusion. Evidence from Microfinance Institutions

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