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Aid Volatility and Social Performance in Microfinance

Author

Listed:
  • Bert D'Espallier
  • Marek Hudon
  • Ariane Szafarz

Abstract

Uncertainty makes objectives harder to reach. This article examines whether uncertainty in subsidies leads to mission drift in microfinance institutions (MFIs). Using a worldwide sample of 1,151 MFIs active in 104 countries, we find that interest rates increase with aid volatility while average loan size (ALS) is inversely related to aid volatility. These results suggest that MFIs consider ALS as a signaling device for commitment to their social mission, but use interest rates as an adjustment variable to cope with uncertainty. The policy prescription to donor agencies wishing to curtail the rise in interest rates is to deliver subsidies predictably and transparently.

Suggested Citation

  • Bert D'Espallier & Marek Hudon & Ariane Szafarz, 2017. "Aid Volatility and Social Performance in Microfinance," ULB Institutional Repository 2013/239877, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/239877
    Note: SCOPUS: ar.j
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    Cited by:

    1. Mª Celia López-Penabad & José Manuel Maside-Sanfiz & Yousif Agha & Ana Iglesias-Casal, 2024. "Microfinance Institutions and Corporate Social Responsibility. A scientometric study," Future Business Journal, Springer, vol. 10(1), pages 1-25, December.
    2. Mersland, Roy & Nyarko, Samuel Anokye & Szafarz, Ariane, 2019. "Do social enterprises walk the talk? Assessing microfinance performances with mission statements," Journal of Business Venturing Insights, Elsevier, vol. 11(C), pages 1-1.
    3. Cecilia Varendh-Mansson & Tyler Wry & Ariane Szafarz, 2020. "Anchors Aweigh? Then Time to Head Upstream Why we Need to Theorize “Mission” before “Drift”," Working Papers CEB PostPrintCEB024, ULB -- Universite Libre de Bruxelles.
    4. Pascal, D. & Mersland, R. & Mori, N., 2017. "The influence of the CEO’s business education on the performance of hybrid organizations: the case of the global microfinance industry," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 49(2), pages 339-354.
    5. Beisland, Leif Atle & Zamore, Stephen & Mersland, Roy, 2023. "Does It Pay to be Green? A Study of the Global Microfinance Industry," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 52(3), pages 631-653.
    6. Daniel Makina, 2021. "Corporate Governance and Financial Inclusion: A Preliminary Review of Literature," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(4), pages 12-23, October.
    7. Paweł Mikołajczak, 2021. "Do Nonprofit Organizations Experience Precarious Employment? The Impact of NGO Commercialization," Public Organization Review, Springer, vol. 21(3), pages 595-609, September.
    8. Simo, Christelle & Tchakoute Tchuigoua, Hubert & Nzongang, Joseph, 2023. "Does corporate social responsibility pay? Evidence from social ratings in microfinance institutions," Technological Forecasting and Social Change, Elsevier, vol. 187(C).
    9. Nyarko, Samuel Anokye, 2022. "Gender discrimination and lending to women: The moderating effect of an international founder," International Business Review, Elsevier, vol. 31(4).
    10. Anastasia Cozarenco & Valentina Hartarska & Ariane Szafarz, 2019. "Too Many Cooks Spoil the Broth: The Conflicting Impacts of Subsidies and Deposits on the Cost-Efficiency of Microfinance Institutions," Working Papers CEB 19-001, ULB -- Universite Libre de Bruxelles.
    11. James Okrah & Alexander N. Nepp, 2022. "Mobile Money Services: An Enabler of Development Processes in Africa," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 21(4), pages 659-662.
    12. 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.
    13. Hessou, Hélyoth T.S. & Tchuigoua, Hubert Tchakoute, 2025. "The countercyclicality of microlending rates: Does the business model of microfinance institutions matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 102(C).
    14. Moh’d Al-Azzam & Christopher Parmeter, 2021. "Competition and microcredit interest rates: international evidence," Empirical Economics, Springer, vol. 60(2), pages 829-868, February.
    15. Zakir Morshed & Mohshin Habib & Christine Jubb, 2020. "Does Regulation Influence Microfinance Institutions to Be More Client-Responsive?," IJFS, MDPI, vol. 8(4), pages 1-24, October.
    16. Gregor Dorfleitner & Davide Forcella & Quynh Anh Nguyen, 2021. "Why microfinance institutions go digital: An empirical analysis," Working Papers CEB 21-003, ULB -- Universite Libre de Bruxelles.
    17. Daudi Pascal & Leif Atle Beisland & Roy Mersland, 2016. "The origin of CEOs and its influence on microfinance performance and risk-taking," Working Papers CEB 16-046, ULB -- Universite Libre de Bruxelles.
    18. Marek Hudon & Marc Labie & Patrick Reichert, 2020. "What is a Fair Level of Profit for Social Enterprise? Insights from Microfinance," Journal of Business Ethics, Springer, vol. 162(3), pages 627-644, March.
    19. Paweł Mikołajczak & Piotr Bajak, 2021. "Does NGOs’ Commercialization Affect Volunteer Work? The Crowding out or Crowding in Effect," Public Organization Review, Springer, vol. 21(1), pages 103-118, March.
    20. Cozarenco, Anastasia & Szafarz, Ariane, 2020. "The regulation of prosocial lending: Are loan ceilings effective?," Journal of Banking & Finance, Elsevier, vol. 121(C).
    21. 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).
    22. Tyler Wry & Eric Yanfei Zhao, 2018. "Taking Trade-offs Seriously: Examining the Contextually Contingent Relationship Between Social Outreach Intensity and Financial Sustainability in Global Microfinance," Organization Science, INFORMS, vol. 29(3), pages 507-528, June.

    More about this item

    Keywords

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    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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