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Profit orientation of microfinance institutions and provision of financial capital to business start-ups

journal contribution
posted on 2016-06-01, 00:00 authored by A Z M Shahriar, S Schwarz, Alexander NewmanAlexander Newman
This article examines whether the profit orientation of a microfinance institution (MFI) affects its decision to extend loans to business start-ups. Based on information from 198 MFIs in 65 countries, we show that for-profit MFIs are less likely to provide financial capital to business start-ups than their not-for-profit counterparts. This results from the adoption of a dominant ‘commercial’ logic by for-profit MFIs, which motivates them to maximize profit by extending loans to less risky ventures with mature projects. In contrast, a dominant ‘development’ logic motivates not-for-profit MFIs to alleviate poverty through supporting the creation of new ventures. The use of a propensity score matching technique to correct for any potential endogeneity problem provides us with greater confidence that the suggested association is not a spurious correlation.

History

Journal

International Small Business Journal: Researching Entrepreneurship

Volume

34

Issue

4

Pagination

532 - 552

Publisher

SAGE PUBLICATIONS LTD

ISSN

0266-2426

eISSN

1741-2870

Language

English

Publication classification

C Journal article; C1.1 Refereed article in a scholarly journal

Copyright notice

2016, Sage