Calibrated performance orientation and financial solidity of microfinance institutions in the West African Economic and Monetary Union

This article examines the effect of the performance orientation of microfinance institutions (MFIs) on their financial solidity. Based on a dual orientation - social and financial - aggregated for MFIs in the West African Economic and Monetary Union (WAEMU), four performance orientations - social, profitability, balancing and blind - were finally retained. The multivariate analysis of variance on a sample of 66 MFIs shows an association between the orientation of the MFI's performance and its financial solidity. As for the results of the binary logistic regression, they reveal that the financial soundness of WAEMU MFIs on the basis of the degree of capitalisation declines when they have a purely social orientation and improves with a profitability or balancing orientation. However, the robustness test shows unequivocally, on the basis of the capitalisation and the Z-score, that a balancing orientation is the ideal for the financial soundness of these MFIs. Our results could be useful to managers in making optimal decisions, and to regulators in putting in place effective regulatory standards that would strengthen the financial soundness of WAEMU MFIs.