Aid Volatility and Social Performance in Microfinance

Bert D'Espallier, Marek Hudon and Ariane Szafarz

No 16-015, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Uncertainty makes objectives harder to reach. This paper 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 is inversely related to aid volatility. These results suggest that MFIs consider average loan size 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.

Keywords: Microfinance; subsidies; mission drift; average loan size; interest rate (search for similar items in EconPapers)
JEL-codes: F35 G21 G28 O54 O57 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2016-02-18
New Economics Papers: this item is included in nep-ban, nep-dev and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Aid Volatility and Social Performance in Microfinance (2017)
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