IDEAS home Printed from https://ideas.repec.org/a/eee/iburev/v23y2014i1p181-194.html
   My bibliography  Save this article

Microfinance, the long tail and mission drift

Author

Listed:
  • Serrano-Cinca, Carlos
  • Gutiérrez-Nieto, Begoña

Abstract

Poor people were excluded from financial services until microfinance institutions (MFIs) emerged. The mission of MFIs is to alleviate poverty, contributing to women empowerment, especially in rural communities. Microcredits can be analyzed under Pareto's 80/20 Principle. Their clients are situated in the long tail of the wealth distribution function. This niche market is not very attractive, because of its high administrative costs, lack of deposits and the need for compensating low revenues with fluctuating subsidies. Some MFIs have drifted from their mission. This paper presents a model to explain microfinance mission drift, tested with hypotheses. The results from the empirical study show a pattern of mission centered MFI: a small NGO, with labor productivity, receiving donations and obtaining a high yield. It can be concluded that there is a need for reducing interest rates. According to the long tail theory, this could be done by using efficient technology, as it has been achieved in the e-commerce sector.

Suggested Citation

  • Serrano-Cinca, Carlos & Gutiérrez-Nieto, Begoña, 2014. "Microfinance, the long tail and mission drift," International Business Review, Elsevier, vol. 23(1), pages 181-194.
  • Handle: RePEc:eee:iburev:v:23:y:2014:i:1:p:181-194
    DOI: 10.1016/j.ibusrev.2013.03.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S096959311300053X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dehejia, Rajeev & Montgomery, Heather & Morduch, Jonathan, 2012. "Do interest rates matter? Credit demand in the Dhaka slums," Journal of Development Economics, Elsevier, vol. 97(2), pages 437-449.
    2. Berger, Allen N. & Black, Lamont K., 2011. "Bank size, lending technologies, and small business finance," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 724-735, March.
    3. Stiglitz, Joseph E, 1969. "Distribution of Income and Wealth among Individuals," Econometrica, Econometric Society, vol. 37(3), pages 382-397, July.
    4. Hudon, Marek & Traca, Daniel, 2011. "On the Efficiency Effects of Subsidies in Microfinance: An Empirical Inquiry," World Development, Elsevier, vol. 39(6), pages 966-973, June.
    5. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    6. Erik Brynjolfsson & Yu (Jeffrey) Hu & Duncan Simester, 2011. "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales," Management Science, INFORMS, vol. 57(8), pages 1373-1386, August.
    7. Ronald U. Mendoza, 2011. "Why do the poor pay more? Exploring the poverty penalty concept," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(1), pages 1-28, January.
    8. Nicolas Krauss & Ingo Walter, 2009. "Can Microfinance Reduce Portfolio Volatility?," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 85-110, October.
    9. Leonard Laudadio, 1963. "Size Of Bank, Size Of Borrower, And The Rate Of Interest," Journal of Finance, American Finance Association, vol. 18(1), pages 20-28, March.
    10. Jimenez, Gabriel & Saurina, Jesus, 2004. "Collateral, type of lender and relationship banking as determinants of credit risk," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2191-2212, September.
    11. Aleem, Irfan, 1990. "Imperfect Information, Screening, and the Costs of Informal Lending: A Study of a Rural Credit Market in Pakistan," World Bank Economic Review, World Bank Group, vol. 4(3), pages 329-349, September.
    12. Mersland, Roy & Strøm, R. Øystein, 2010. "Microfinance Mission Drift?," World Development, Elsevier, vol. 38(1), pages 28-36, January.
    13. Marek Hudon, 2007. "Fair interest rates when lending to the poor," ULB Institutional Repository 2013/14204, ULB -- Universite Libre de Bruxelles.
    14. Morduch, Jonathan, 2000. "The Microfinance Schism," World Development, Elsevier, vol. 28(4), pages 617-629, April.
    15. Beaver, Wh, 1966. "Financial Ratios As Predictors Of Failure," Journal of Accounting Research, Wiley Blackwell, vol. 4, pages 71-111.
    16. Tchakoute-Tchuigoua, Hubert, 2010. "Is there a difference in performance by the legal status of microfinance institutions?," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(4), pages 436-442, November.
    17. Roberts, Peter W., 2013. "The Profit Orientation of Microfinance Institutions and Effective Interest Rates," World Development, Elsevier, vol. 41(C), pages 120-131.
    18. Valentina Hartarska & Christopher F. Parmeter & Denis Nadolnyak, 2010. "Economies of Scope of Lending and Mobilizing Deposits in Microfinance Institutions: A Semiparametric Analysis," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(2), pages 389-398.
    19. Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2011. "Outreach and Efficiency of Microfinance Institutions," World Development, Elsevier, vol. 39(6), pages 938-948, June.
    20. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2009. "Microfinance Meets the Market," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 167-192, Winter.
    21. Andreas Dietrich, 2012. "Explaining loan rate differentials between small and large companies: evidence from Switzerland," Small Business Economics, Springer, vol. 38(4), pages 481-494, May.
    22. Suman Ghosh & Eric Van Tassel, 2008. "A Model of Mission Drift in Microfinance Institutions," Working Papers 08003, Department of Economics, College of Business, Florida Atlantic University.
    23. Beatriz Armendáriz & Ariane Szafarz, 2011. "On Mission Drift in Microfinance Institutions," World Scientific Book Chapters, in: Beatriz Armendáriz & Marc Labie (ed.), The Handbook Of Microfinance, chapter 16, pages 341-366, World Scientific Publishing Co. Pte. Ltd..
    24. Hermes, Niels & Lensink, Robert, 2011. "Microfinance: Its Impact, Outreach, and Sustainability," World Development, Elsevier, vol. 39(6), pages 875-881, June.
    25. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, Wiley Blackwell, vol. 18(1), pages 109-131.
    26. repec:idb:brikps:79506 is not listed on IDEAS
    27. Roy Mersland & Reidar Øystein Strøm, 2008. "Performance and trade-offs in Microfinance Organisations-does ownership matter?," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(5), pages 598-612.
    28. Copestake, James, 2007. "Mainstreaming Microfinance: Social Performance Management or Mission Drift?," World Development, Elsevier, vol. 35(10), pages 1721-1738, October.
    29. Peppard, Joe, 2000. "Customer Relationship Management (CRM) in financial services," European Management Journal, Elsevier, vol. 18(3), pages 312-327, June.
    30. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, World Bank Group, vol. 4(3), pages 351-366, September.
    31. Philip E. Strahan & James Weston, 1996. "Small business lending and bank consolidation: is there cause for concern?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 2(Mar).
    32. Morduch, Jonathan, 1999. "The role of subsidies in microfinance: evidence from the Grameen Bank," Journal of Development Economics, Elsevier, vol. 60(1), pages 229-248, October.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dorfleitner, Gregor & Röhe, Michaela & Renier, Noémie, 2017. "The access of microfinance institutions to debt capital: An empirical investigation of microfinance investment vehicles," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 1-15.
    2. Mawuli Kodjovi Couchoro, 2019. "La place des mecanismes d’epargne-credit et de pret progressif dans la selection des clients des IMF en milieu urbain : le cas de WAGES en 2010," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 31(2), pages 314-331, April.
    3. Md Aslam Mia & V. G. R. Chandran, 2016. "Measuring Financial and Social Outreach Productivity of Microfinance Institutions in Bangladesh," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(2), pages 505-527, June.
    4. Drori, Israel & Manos, Ronny & Santacreu-Vasut, Estefania & Shenkar, Oded & Shoham, Amir, 2018. "Language and market inclusivity for women entrepreneurship: the case of microfinance," Journal of Business Venturing, Elsevier, vol. 33(4), pages 395-415.
    5. Larios-Hernández, Guillermo Jesús, 2017. "Blockchain entrepreneurship opportunity in the practices of the unbanked," Business Horizons, Elsevier, vol. 60(6), pages 865-874.
    6. Joshua K Ault, 2016. "An institutional perspective on the social outcome of entrepreneurship: Commercial microfinance and inclusive markets," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 47(8), pages 951-967, October.
    7. Leif Atle Beisland & Bert D’Espallier & Roy Mersland, 2019. "The Commercialization of the Microfinance Industry: Is There a ‘Personal Mission Drift’ Among Credit Officers?," Journal of Business Ethics, Springer, vol. 158(1), pages 119-134, August.
    8. Md Aslam Mia & Shamima Nasrin & Zhang Cheng, 2016. "Quality, quantity and financial sustainability of microfinance: Does resource allocation matter?," Quality & Quantity: International Journal of Methodology, Springer, vol. 50(3), pages 1285-1298, May.
    9. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    10. Sydney Chikalipah, 2017. "Institutional Environment and Microfinance Performance in Sub-Saharan Africa," African Development Review, African Development Bank, vol. 29(1), pages 16-27, March.
    11. Julie De Pril & Cécile Godfroid, 2017. "How to Reconcile Financial Incentives and Prosocial Motivation of Loan Officers in Microfinance?," Working Papers CEB 17-011, ULB -- Universite Libre de Bruxelles.
    12. Namrata Gupta & Anita Mirchandani, 2020. "Corporate governance and performance of microfinance institutions: recent global evidences," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(2), pages 307-326, June.
    13. Sanfilippo-Azofra, Sergio & Torre-Olmo, Begoña & Cantero-Saiz, María, 2019. "Microfinance institutions and the bank lending channel in Asia and Latin America," Journal of Asian Economics, Elsevier, vol. 63(C), pages 19-32.
    14. Yu Shuai & Chuan-min Shuai & Wen-jing Li & Fu-bin Huang, 2019. "Role of women’s empowerment in improving farmer’s livelihood: empirical evidence from China," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(2), pages 621-639, March.
    15. Chanchai Phonthanukitithaworn & Chavis Ketkaew & Phaninee Naruetharadhol, 2019. "Relevant Factors for Success as an Online Entrepreneur in Thailand," SAGE Open, , vol. 9(1), pages 21582440188, January.
    16. Jeremy D. Turiel & Tomaso Aste, 2019. "P2P Loan acceptance and default prediction with Artificial Intelligence," Papers 1907.01800, arXiv.org.
    17. De Pril, Julie & Godfroid, Cécile, 2020. "Avoiding the crowding-out of prosocial motivation in microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 108-117.
    18. Dan Brockington & Nicola Banks, 2014. "Exploring the Success of BRAC Tanzania’s Microcredit Programme," Global Development Institute Working Paper Series 20214, GDI, The University of Manchester.
    19. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlos Serrano-Cinca & Begoña Gutiérrez-Nieto & Beatriz Cuéllar Fernández & Yolanda Fuertes-Callén, 2013. "Poverty penalty and microfinance," Working Papers CEB 13-029, ULB -- Universite Libre de Bruxelles.
    2. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.
    3. Bos, Jaap W.B. & Millone, Matteo, 2015. "Practice What You Preach: Microfinance Business Models and Operational Efficiency," World Development, Elsevier, vol. 70(C), pages 28-42.
    4. Patrick Reichert, 2016. "A meta-analysis examining the nature of trade-offs in microfinance," Working Papers CEB 16-005, ULB -- Universite Libre de Bruxelles.
    5. Hermes, Cornelis & Hudon, M., 2018. "Determinants of the Performance of Microfinance Institutions: A Systematic Review," Research Report 2018008, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    6. Begoña Gutiérrez-Nieto & Carlos Serrano-Cinca & Beatriz Cuéllar-Fernández & Yolanda Fuertes-Callén, 2017. "The Poverty Penalty and Microcredit," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 133(2), pages 455-475, September.
    7. Brière, Marie & Szafarz, Ariane, 2015. "Does Commercial Microfinance Belong to the Financial Sector? Lessons from the Stock Market," World Development, Elsevier, vol. 67(C), pages 110-125.
    8. Widiarto, Indra & Emrouznejad, Ali, 2015. "Social and financial efficiency of Islamic microfinance institutions: A Data Envelopment Analysis application," Socio-Economic Planning Sciences, Elsevier, vol. 50(C), pages 1-17.
    9. Simon Cornée & Gervais Thenet, 2015. "Efficience des institutions de microfinance en Bolivie et au Pérou : une approche Data Envelopment Analysis en deux étapes," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201516, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    10. repec:dau:papers:123456789/14039 is not listed on IDEAS
    11. Begoña Gutiérrez Nieto & Carlos Serrano-Cinca, 2019. "20 Years of Research in Microfinance: An Information Management Approach," Working Papers CEB 19-005, ULB -- Universite Libre de Bruxelles.
    12. Hudon, Marek & Périlleux, Anaïs, 2014. "Surplus distribution and characteristics of social enterprises: Evidence from microfinance," The Quarterly Review of Economics and Finance, Elsevier, vol. 54(2), pages 147-157.
    13. Bibi, Uzma & Balli, Hatice Ozer & Matthews, Claire D. & Tripe, David W.L., 2018. "New approaches to measure the social performance of microfinance institutions (MFIs)," International Review of Economics & Finance, Elsevier, vol. 53(C), pages 88-97.
    14. Tchakoute Tchuigoua, Hubert, 2018. "Which types of microfinance institutions decentralize the loan approval process?," The Quarterly Review of Economics and Finance, Elsevier, vol. 67(C), pages 237-244.
    15. D’Espallier, Bert & Goedecke, Jann & Hudon, Marek & Mersland, Roy, 2017. "From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?," World Development, Elsevier, vol. 89(C), pages 19-33.
    16. Jacinta C. Nwachukwu & Simplice A. Asongu, 2015. "The Determinants of Interest Rates in Microbanks: Age and Scale," Research Africa Network Working Papers 15/004, Research Africa Network (RAN).
    17. Roberts, Peter W., 2013. "The Profit Orientation of Microfinance Institutions and Effective Interest Rates," World Development, Elsevier, vol. 41(C), pages 120-131.
    18. Karel Janda & Pavel Zetek, 2015. "Mikrofinanční revoluce: kontroverze a výzvy [Microfinance Revolution: Controversies and Challenges]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(1), pages 108-130.
    19. Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2016. "Aid Volatility and Social Performance in Microfinance," Working Papers CEB 16-015, ULB -- Universite Libre de Bruxelles.
    20. Beatriz Cu鬬ar-Fernᮤez & Yolanda Fuertes-Call鮠 & Carlos Serrano-Cinca & Bego uti鲲ez-Nieto, 2016. "Determinants of margin in microfinance institutions," Applied Economics, Taylor & Francis Journals, vol. 48(4), pages 300-311, January.
    21. repec:dau:papers:123456789/7858 is not listed on IDEAS
    22. Namrata Gupta & Anita Mirchandani, 2020. "Corporate governance and performance of microfinance institutions: recent global evidences," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 24(2), pages 307-326, June.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:23:y:2014:i:1:p:181-194. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nithya Sathishkumar). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.