Profit Orientation of Microfinance Institutions and Provision of Financial Capital to Business Start-Ups

Abu Zafar MD Shahriar, Susan Schwarz, Alexander Harry Newman

Research output: Contribution to journalArticleResearchpeer-review

23 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)532-552
Number of pages21
JournalInternational Small Business Journal
Volume34
Issue number4
DOIs
Publication statusPublished - 2016

Cite this

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abstract = "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.",
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Profit Orientation of Microfinance Institutions and Provision of Financial Capital to Business Start-Ups. / Shahriar, Abu Zafar MD; Schwarz, Susan; Newman, Alexander Harry.

In: International Small Business Journal, Vol. 34, No. 4, 2016, p. 532-552.

Research output: Contribution to journalArticleResearchpeer-review

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