File(s) under permanent embargo
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 NewmanThis 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.