The impact of external governance quality on the economic and social success of microfinance institutions

Oliver Müller and André Uhde

International Journal of Monetary Economics and Finance, 2013, vol. 6, issue 2/3, 116-149

Abstract: Employing a Hausman-Taylor instrument variable (HT-IV) estimator to data from 558 microfinance institutions (MFIs) in 80 developing countries for the period from 2002 to 2007, this paper provides empirical evidence for a positive impact of a country's external governance quality and outcome on local microbanks' economic success in terms of profitability and sustainability. Evidence as well suggests a negative relationship between external governance and the microbanks' social success measured by the depth of outreach. In this context, our analysis reveals that a country's political stability, governance effectiveness, regulatory quality and rule of law are significant key elements of external governance affecting the MFIs' functional performance. Moreover, results from sensitivity analyses indicate that the relationship between external governance quality and microfinance functional performance significantly depends on the microbanks' business concepts, their lending methodologies and sources of funding.

Keywords: microfinance; external governance; economic success; social success; developing countries; profitability; sustainability; microbanks; outreach; political stability; governance effectiveness; regulatory quality; rule of law; governance quality; lending methodologies; funding sources. (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijmefi:v:6:y:2013:i:2/3:p:116-149

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