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Religiosity and threshold effect in social and financial performance of microfinance institutions: System GMM and non-linear threshold approaches

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  • Mobin, Mohammad Ashraful
  • Alhabshi, Syed Othman
  • Masih, Mansur

Abstract

The commercialization process and over-emphasis on sustainability apparently improve Micro finance institutions’ financial performance and the scale in terms of total number of borrowers and average loan size. However, whether focusing on financial sustainability is necessarily at the sacrifice of serving the less poor clients or social and financial performance of MFIs, depends on the social values and religion. The inconsistent results of previous studies implicate that linear regressions may be insufficient to explain the sustainability-outreach linkage because of potential non-linear relationship between financial sustainability and average loan size. To solve the puzzle, this study employs relatively advanced dynamic difference and system GMM as well as non-linear Hansen threshold techniques. To the best of our knowledge this is the first study to apply non-linear technique over a sample of conventional and Islamic MFIs at the same time. The results tend to indicate the existence of religiosity effect on the social and financial performance of microfinance institutions, while the study does not find any evidence of sustainability-outreach paradox. Our findings present important insights for Islamic and conventional microfinance managers and donors as well as policy makers of the country to formulate a better policy. Social performance will harmonize the financial performance of microfinance institutions, so the MFIs authorities should not be necessarily worried about the financial sustainability while focusing on outreaching the poor.

Suggested Citation

  • Mobin, Mohammad Ashraful & Alhabshi, Syed Othman & Masih, Mansur, 2015. "Religiosity and threshold effect in social and financial performance of microfinance institutions: System GMM and non-linear threshold approaches," MPRA Paper 65242, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:65242
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    File URL: https://mpra.ub.uni-muenchen.de/65242/1/MPRA_paper_65242.pdf
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    References listed on IDEAS

    as
    1. Ross Levine & Norman Loayza & Thorsten Beck, 2002. "Financial Intermediation and Growth: Causality and Causes," Central Banking, Analysis, and Economic Policies Book Series,in: Leonardo Hernández & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Banking, Financial Integration, and International Crises, edition 1, volume 3, chapter 2, pages 031-084 Central Bank of Chile.
    2. Richard Blundell & Stephen Bond, 2000. "GMM Estimation with persistent panel data: an application to production functions," Econometric Reviews, Taylor & Francis Journals, vol. 19(3), pages 321-340.
    3. D'Espallier, Bert & Guérin, Isabelle & Mersland, Roy, 2011. "Women and Repayment in Microfinance: A Global Analysis," World Development, Elsevier, vol. 39(5), pages 758-772, May.
    4. Magda Ismail Abdel Mohsin, 2013. "Financing through cash-waqf: a revitalization to finance different needs," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing, vol. 6(4), pages 304-321, November.
    5. Hulme, David, 2000. "Impact Assessment Methodologies for Microfinance: Theory, Experience and Better Practice," World Development, Elsevier, vol. 28(1), pages 79-98, January.
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    More about this item

    Keywords

    microfinance; Islamic finance; religion; non-linear threshold; system GMM;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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