From NGOs to banks: Does institutional transformation alter the business model of microfinance institutions?

Bert D'Espallier, Jann Goedecke, Marek Hudon and Roy Mersland

No 16-029, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Microfinance, which pledges to provide financial services to people without access to banking, is chiefly run by non-governmental organizations (NGOs). Little is known about the extent to which the transformation of these NGOs into shareholder-owned and, most often, regulated firms affects the way microfinance institutions (MFIs) conduct their business. By applying the event study methodology to 66 MFIs that have transformed, we quantify the effect that transformation has on the MFIs’ business models. Our results suggest that portfolio yield is driven down by 3.9 percentage points due to transformation, indicating that clients get more favorable interest rates. At the same time, MFIs are able to significantly cut down their operational expenses, of which 1.1 percentage points can be attributed to transformation. Other findings include a steep increase in commercial debt leverage and deposits, a significant decrease in the fluctuation of funding costs and a sharp rise in average loan size. Profitability goes down in the short and medium term, while return on equity is driven up in the medium to long run. By exploiting within-MFI data, our approach goes beyond previous studies that mainly relied on between-MFI data. Overall, the results suggest that transformed MFIs become an attractive environment for investors, potentially encouraging a more profit-seeking behavior among transformed MFIs.

Keywords: Microfinance; transformation; business model; regulation (search for similar items in EconPapers)
JEL-codes: D61 F21 G21 G32 O16 (search for similar items in EconPapers)
Date: 2016-06-30
New Economics Papers: this item is included in nep-ban and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Published by:

Downloads: (external link)
https://dipot.ulb.ac.be/dspace/bitstream/2013/232522/3/wp16029.pdf Œuvre complète ou partie de l'œuvre (application/pdf)

Related works:
Journal Article: From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions? (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sol:wpaper:2013/232522

Ordering information: This working paper can be ordered from
http://hdl.handle.ne ... lb.ac.be:2013/232522

Access Statistics for this paper

More papers in Working Papers CEB from ULB -- Universite Libre de Bruxelles Contact information at EDIRC.
Bibliographic data for series maintained by Benoit Pauwels ().