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Where does microfinance flourish? Microfinance institution performance in macroeconomic context

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

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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/devec

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