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Where does microfinance flourish? Microfinance institution performance in macroeconomic context

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  • Ahlin, Christian
  • Lin, Jocelyn
  • Maio, Michael
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    Abstract

    We study whether and how the success of microfinance institutions ("MFI"s) depends on the country-level context, in particular macroeconomic and macro-institutional features. Understanding these linkages can make MFI evaluation more accurate and, further, can help to locate microfinance in the broader picture of economic development. We collect data on 373 MFIs and merge it with country-level economic and institutional data. Evidence arises for complementarity between MFI performance and the broader economy. For example, MFIs are more likely to cover costs when growth is stronger; and MFIs in financially deeper economies have lower default and operating costs, and charge lower interest rates. There is also evidence suggestive of substitutability or rivalry. For example, more manufacturing and higher workforce participation are associated with slower growth in MFI outreach. Overall, the country context appears to be an important determinant of MFI performance; MFI performance should be handicapped for the environment in which it was achieved.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Development Economics.

    Volume (Year): 95 (2011)
    Issue (Month): 2 (July)
    Pages: 105-120

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    Handle: RePEc:eee:deveco:v:95:y:2011:i:2:p:105-120

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    Web page: http://www.elsevier.com/locate/devec

    Related research

    Keywords: microfinance micro-credit financial sustainability default growth private credit context;

    References

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    Cited by:
    1. Wagner, Charlotte & Winkler, Adalbert, 2013. "The Vulnerability of Microfinance to Financial Turmoil – Evidence from the Global Financial Crisis," World Development, Elsevier, Elsevier, vol. 51(C), pages 71-90.
    2. Imai, Katsushi S. & Gaiha, Raghav & Thapa, Ganesh & Annim, Samuel Kobina, 2012. "Microfinance and Poverty—A Macro Perspective," World Development, Elsevier, Elsevier, vol. 40(8), pages 1675-1689.
    3. Hartarska, Valentina & Shen, Xuan & Mersland, Roy, 2013. "Scale economies and input price elasticities in microfinance institutions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(1), pages 118-131.
    4. Cull, Robert & Navajas, Sergio & Nishida, Ippei & Zeiler, Renate, 2013. "A new index of the business environment for microfinance," Policy Research Working Paper Series 6625, The World Bank.
    5. Janda, Karel & Turbat, Batbayar, 2013. "Econometric Analysis of Profitability of Microfinance Institutions in Selected Asian Countries," MPRA Paper 51430, University Library of Munich, Germany.
    6. Tchakoute-Tchuigoua, Hubert, 2012. "Active risk management and loan contract terms: Evidence from rated microfinance institutions," The Quarterly Review of Economics and Finance, Elsevier, Elsevier, vol. 52(4), pages 427-437.
    7. Gabriel Di Bella, 2011. "The Impact of the Global Financial Crisison Microfinance and Policy Implications," IMF Working Papers 11/175, International Monetary Fund.
    8. Janda, Karel & Zetek, Pavel, 2013. "Macroeconomic factors influencing interest rates of microfinance institutions in Latin America," MPRA Paper 49973, University Library of Munich, Germany.
    9. Janda, Karel & Zetek, Pavel, 2014. "Mikrofinanční Revoluce: Aktuální Kontroverze A Výzvy
      [Microfinance Revolution: Recent Controversies And Challenges]
      ," MPRA Paper 54098, University Library of Munich, Germany.
    10. Janda, Karel & Zetek, Pavel, 2014. "The Impact of Public Spending on the Performance of Microfinance Institutions," MPRA Paper 55690, University Library of Munich, Germany.
    11. Janda, Karel & Van Tran, Quang & Zetek, Pavel, 2014. "Influence of External Funding on Microfinance Performance," MPRA Paper 58170, University Library of Munich, Germany.
    12. Katsushi S. Imai & Raghav Gaiha & Ganesh Thapa & Samuel Kobina Annim & Aditi Gupta, 2012. "Financial Performance of Microfinance Institutions-A Macroeconomic and Institutional Perspective," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2012-04, Research Institute for Economics & Business Administration, Kobe University.
    13. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
    14. Nargiza Maksudova, 2010. "Macroeconomics of Microfinance: How Do the Channels Work?," CERGE-EI Working Papers wp423, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    15. Inoue, Takeshi & Hamori, Shigeyuki, 2011. "Financial permeation as a role of microfinance : has microfinance actually been helpful to the poor?," IDE Discussion Papers, Institute of Developing Economies, Japan External Trade Organization(JETRO) 299, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    16. Mallick, Debdulal & Nabin, Munirul, 2010. "Where NGOs go and do not go?," MPRA Paper 27185, University Library of Munich, Germany.
    17. Dan Brockington & Nicola Banks, 2014. "Exploring the Success of BRAC Tanzania’s Microcredit Programme," Brooks World Poverty Institute Working Paper Series 20214, BWPI, The University of Manchester.
    18. Janda, Karel & Tran, Quang & Zetek, Pavel, 2014. "Vliv externího financování na mikrofinanční rozvoj - makro perspektiva
      [Influence of external funding on microfinance performance - macro perspective]
      ," MPRA Paper 58166, University Library of Munich, Germany.
    19. Karel Janda & Barbora Svarovska, 2012. "Suitability of Microfinance as an Investment Option," CERGE-EI Working Papers wp470, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
    20. Arrassen, Wassini, 2013. "La microfinance : quelles leçons tirées des expériences des pays en développement ?," Economics Thesis from University Paris Dauphine, Paris Dauphine University, Paris Dauphine University, number 123456789/12692 edited by Avouyi-Dovi, Sanvi.

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