Factors Influencing Microfinance Engagements by Formal Financial Institutions

Journal of Business Ethics · 2017 · Volume 143 · Issue 3

Abstract

The commercialization of microfinance brings formal financial institutions into the microfinance landscape, yet little is known about the forces that lead to this phenomenon. This paper is the first dedicated to this topic using a hand-collected dataset of 112 institutions from 34 countries covering the period from 2008 to 2012. Based on institutional theory and resource-based argument, we empirically assess the effects of institutional environment factors, including regulative, normative, and cognitive elements, as well as resource-based factors, including practice model and multinational diversity, on the intensity of engagements. To do so, we define the roles as capital-related, product-related, and service delivery, and calculate engagement intensity using a scoring method which reflects an organization’s extent of presence in the microfinance value chain. The analysis takes the engaging location (domestic or overseas) and engaging model (connected or unconnected to core business) into account. We find that the two logics together can explain such involvement. Legal compliance is identified as most relevant for domestic players, while resource-based factors are more relevant for overseas players. In addition to regression analysis, many cases are identified to support the arguments.

Keywords

Microfinance, Formal financial institutions, Institutional theory, Resource-based theory, Integrated framework, Multinational diversity

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