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What is a fair profit for social enterprise? Insights from microfinance

Marek Hudon, Marc Labie () and Patrick Reichert ()

No 17-024, Working Papers CEB from ULB -- Universite Libre de Bruxelles

Abstract: Although microfinance organizations have typically been considered as inherently ethical, recent events have challenged the legitimacy of the sector. High interest rates and the exorbitant profitability of some market leaders have raised the question of what can be considered a fair, or ethical, level of profit for social enterprise. In this article, we construct a fair profit framework for social enterprise based on four dimensions: the level of profitability, the extent to which the organization adheres to its social mission, the pricing and the surplus distribution. We then apply this framework using an empirical sample of 496 microfinance institutions. Results indicate that satisfying all four dimensions is a difficult, although not impossible, task. Based on our framework, 13 MFIs emerge as true double-bottom-line organizations and tend to be relatively young, large MFIs from South Asia. Using our framework, we argue that excessive profits can be better understood relative to pricing, the outreach of the MFI and the organizational commitment to clients in the form of reduced interest rates.

Keywords: Microfinance; Development Ethics; Exploitation; Institutional Logic (search for similar items in EconPapers)
JEL-codes: F35 G21 G28 L31 M14 (search for similar items in EconPapers)
Pages: 35 p.
Date: 2017-10-12
New Economics Papers: this item is included in nep-ban, nep-cta, nep-hme and nep-mfd
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