The role of national culture in the relationship between microfinance outreach and sustainability: a correlated random effects approach

Abstract

PurposeThis study investigates the role of national culture between outreach and sustainability of microfinance institutions (MFIs). Despite microfinance's deep embeddedness in cultural contexts, research on the influence of national culture on MFI performance is rather sparse. This paper seeks to fill this gap and, based on cross-country microfinance data, attempts to explain the outreach-sustainability relationship in reference to cultural factors.Design/methodology/approachAn unbalanced panel, consisting of 5,741 MFI-year observations of 1,232 MFIs from 43 countries in six regions, is drawn from the Microfinance Information Exchange (MIX) Market database. Two different econometric models are tested. Model 1 estimates the direct effect of outreach on sustainability, using a fixed-effects estimator. Model 2 examines the moderation effect of national culture on outreach-sustainability relationship, employing correlated random effects approach.FindingsThe results show that depth of outreach and financial sustainability of MFIs are negatively related, and the relationship is moderated by national culture. Power distance and uncertainty avoidance positively moderate the outreach-sustainability relationship, whereas individualism and masculinity negatively moderate the relationship.Originality/valueThe findings suggest that the national culture where MFIs are located plays an important contingent role in their performance and that the magnitude of the trade-off effect varies from culture to culture. The research thus provides further insight in the trade-off debate and contributes to literatures of both microfinance and cross-cultural management.

Social and financial performance of MFIs: complementary or compromise?

“…However, they argue that this adverse impact can be removed by improving productivity and loan repayments. Zainuddin et al (2020) investigates the relationship between social and financial objectives of an MFI in the light of the cultural factors. They find that the depth of outreach and sustainability are negatively related.…”

The Governance Structure of Microfinance Institutions: A Comparison of Models of Sustainability and their Implication on Outreach

“…The method by which it is financed is very similar to that of the MFB. It has a purpose similar to that of many other microfinance institutions (MFIs), which is to reduce poverty by empowering those who live below the federal poverty line [18,25]. Bangladesh has a significant rural-urban financial gap, financial illiteracy, and a lack of adequate health and sanitary facilities, with 42 per cent of the population living below the poverty line and 16 per cent living in extreme poverty [4,21].…”

Sustainable development and national cultures: a quantitative and qualitative analysis of the research field

“…In turn, Gallego-Álvarez and Ortas (2017) focused only on the environmental bottom line in the GRI reports from 59 countries. The papers also dealt with topics presented in the keyword networks (Cluster 1), such as supply chain management (e.g., its social aspects in the context of Brazilian culture were discussed by Jabbour et al, (2020)), tourism (the habits of tourists as part of the national culture, the issue of environmentally sustainable tourism (e.g., Pegas et al (2015)), and particular businesses (microfinance institutions with the focus on economic sustainability) (e.g., Kittilaksanawong and Zhao (2018) or Zainuddin et al (2020)).…”