Financial performance and social goals of microfinance institutions

Julian Schmied

No 2, Potsdam Economic Papers from Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät

Abstract: Critics argue that there has been a trend among Microfinance Institutions (MFI) to focus on profitability in order to stay financially sustainable. This made some institutions neglect the social mission of microfinancing. In this paper I intend to examine if empirical evidence supports this so called mission drift hypothesis as well as other claims in this context. Using the global panel data set of the MIX (Microfinance Information Exchange), which gathers from 1995 to 2010 and contains up to 1400 institutions with a high variety of organizational forms, I was able to identify a world-wide mission drift effect in their social goal of reaching out the poorest part of the population. Furthermore, I find that, on average, the outreach of an MFI has a significant negative influence on its short and long term financial performance. Despite that, I eventually proved that the probability that an MFI worsens its social performance substantially increases if its profitability has decreased in the previous years.

Keywords: microfinance institutions; micro loans; mission drift; financial performance; social goals (search for similar items in EconPapers)
Date: 2014-04
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (3)

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