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How does microfinance prosper? An analysis of environmental, social, and governance context

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  • Tauhidul Islam Tanin
  • Mohammad Ashraful Mobin
  • Adam Ng
  • Ginanjar Dewandaru
  • Kinan Salim
  • Malik Abdulrahman Nkoba
  • Lutfi Abdul Razak

Abstract

The spotlight of this study is to examine whether environmental, social, and governance performance affects the financial performance of microfinance institutions (MFIs). The topic has been of much interest to researchers and policymakers due to increased awareness among stakeholders on the adverse social and environmental impacts of business actions. Using a dataset covering 5 years for 62 MFIs across 34 countries, we find that environmental and governance performance has no impact on the financial performance of MFIs. As for the social–financial performance nexus, our results reveal a positive relationship using the depth of outreach as proxy of social performance. However, when women empowerment is used as a proxy for social performance, evidence suggest presence of negative relationship. The study contributes to the literature by providing new evidence on the relationship between environmental, social, and governance and financial performance from microfinance industry. Our results are robust to a variety of econometric specifications and have significant policy implications for donors, investors, MFIs, and regulators.

Suggested Citation

  • Tauhidul Islam Tanin & Mohammad Ashraful Mobin & Adam Ng & Ginanjar Dewandaru & Kinan Salim & Malik Abdulrahman Nkoba & Lutfi Abdul Razak, 2019. "How does microfinance prosper? An analysis of environmental, social, and governance context," Sustainable Development, John Wiley & Sons, Ltd., vol. 27(6), pages 1001-1022, November.
    • Handle: RePEc:wly:sustdv:v:27:y:2019:i:6:p:1001-1022
    DOI: 10.1002/sd.1952
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    Cited by:

    1. Wei Xu & Hongyong Fu & Huanpeng Liu, 2019. "Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study," Sustainability, MDPI, vol. 11(21), pages 1-22, October.
    2. Ruiqian Li & Ramakrishnan Ramanathan & Guanghua Xu, 2023. "The impact of penalties for environmental violations on corporate environmental responsibility," Sustainable Development, John Wiley & Sons, Ltd., vol. 31(3), pages 1343-1363, June.
    3. Khawla Chedad & Ayoub Boukir & Sanae Chaabi & Samir Aguenaou & Jawad Abrache, 2022. "Financial Performance and Sustainability of Microfinance Institutions in Morocco: A Structural Equation Model," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 51-57.
    4. Anna Dłużewska & Andrea Giampiccoli, 2021. "Enhancing island tourism's local benefits: A proposed community‐based tourism‐oriented general model," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(1), pages 272-283, January.
    5. Khine Kyaw & Julio Pindado & Chabela de-la-Torre, 2022. "Disentangling the Bidirectional Relationships Across the Corporate Sustainable Development Indicators," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 163(1), pages 297-320, August.
    6. Dawood Ashraf & Muhammad Suhail Rizwan & Barbara L’Huillier, 2022. "Environmental, social, and governance integration: the case of microfinance institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 837-891, March.
    7. Arim Park & Huan Li, 2021. "The Effect of Blockchain Technology on Supply Chain Sustainability Performances," Sustainability, MDPI, vol. 13(4), pages 1-18, February.
    8. Md Aslam Mia & Hasanul Banna & Abu Hanifa Md Noman & Md Rabiul Alam & Md. Sohel Rana, 2022. "Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(1), pages 55-84, March.
    9. Gaurav Jyoti & Ashu Khanna, 2021. "Does sustainability performance impact financial performance? Evidence from Indian service sector firms," Sustainable Development, John Wiley & Sons, Ltd., vol. 29(6), pages 1086-1095, November.
    10. Yaghoub Abdi & Xiaoni Li & Xavier Càmara‐Turull, 2022. "How financial performance influences investment in sustainable development initiatives in the airline industry: The moderation role of state‐ownership," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1252-1267, October.
    11. Md. Ali Rasel & Sandar Win, 2020. "Microfinance governance: a systematic review and future research directions," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(7), pages 1811-1847, April.
    12. Ainan Memon & Waqar Akram & Ghulam Abbas & Abbas Ali Chandio & Sultan Adeel & Iram Yasmin, 2022. "Financial Sustainability of Microfinance Institutions and Macroeconomic Factors: A Case of South Asia," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 116-142, June.

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