Practice what you preach: Microfinance business models and operational efficiency
AbstractThe microfinance sector is an example of a sector in which firms with different business models coexist. Next to pure for-profit microfinance institutions MFIs, the sector has room for non-profit organizations, and includes social for-profit firms that aim to maximize a double bot- tom line and do well while doing good. We introduce a benchmarking approach that accommodates these three business models and allows us to estimate the efficiency of MFIs when they operate true to their busi- ness model, but also when they drift away from their original design. Using a simple model, we hypothesize that it is more difficult to operate efficiently when pursuing a double bottom line. Our empirical results for a large sample of MFIs are in line with this hypothesis pure for-profit and non-profit FMIs are more efficient than social for-profit MFIs. In addition, efficiency decreases for all MFIs when they move away from their original business model. Increasing the risk of the loan portfolio reduces efficiency and lending to woman increases efficiency. Finally, our finding that multiple lending to borrowers is efficiency-enhancing may help explain the mission drift in microfinance.
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Bibliographic InfoPaper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 067.
Date of creation: 2013
Date of revision:
Econometrics; Banks; Depository Institutions; Micro Finance Institutions; Mortgages; Microeconomic Analyses of Economic Development; Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-EFF-2014-02-02 (Efficiency & Productivity)
- NEP-MFD-2014-02-02 (Microfinance)
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