Cross-Border Spillovers in Social Entrepreneurship: Spatial Proximity and Microfinance Performance

We examine the consequences of spatial proximity on the performance of a distinct type of social enterprise – microfinance institutions (MFIs). Specifically, by using seemingly unrelated regressions, we evaluate how spatial proximity relates simultaneously to three dimensions of performance within a cross-border spillovers framework. We find that while the outreach to the poor by neighboring countries’ MFIs is positively related to the outreach of an MFI, their financial performance is negatively related. The results indicate that the outreach to clients within the region is improved with similar financial services. However, the cost of better outreach differs across countries in line with the literature showing tradeoffs between client outreach and financial sustainability. Country-level economic and institutional factors are identified as channels through which spatial spillovers are observed. The policy implications of our findings suggest that regional economic development and knowledge sharing professional communities have a bigger role to play when it comes to spatial spillovers in microfinance.