Microfinance Performance and Social Capital: A Cross-Country Analysis

Luminita Postelnicu and Niels Hermes ()
Additional contact information
Luminita Postelnicu: Université Libre de Bruxelles
Niels Hermes: Université Libre de Bruxelles

Journal of Business Ethics, 2018, vol. 153, issue 2, No 8, 427-445

Abstract: Abstract In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial to understand under what conditions microfinance institutions (MFIs) are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis.

Keywords: Microfinance; Social capital; Financial performance; Social performance (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://link.springer.com/10.1007/s10551-016-3326-0 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Microfinance Performance and Social Capital: A Cross-Country Analysis (2018)
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:kap:jbuset:v:153:y:2018:i:2:d:10.1007_s10551-016-3326-0

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10551/PS2

DOI: 10.1007/s10551-016-3326-0

Access Statistics for this article

Journal of Business Ethics is currently edited by Michelle Greenwood and R. Edward Freeman

More articles in Journal of Business Ethics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().