Institutional Analysis to Understand the Growth of Microfinance Institutions in West African Economic and Monetary Union

Abstract

Purpose – The extent to which microfinance succeeds varies greatly even among countries. The paper aims to look at why microfinance develops in some countries rather than others. It aims to identify institutional factors that can be introduced to enable microfinance to succeed in a country.

Design/methodology/approach – A small-sample comparative approach is used, combined with correlation analysis. The research methodology was dictated by the need to find countries that are culturally similar and have the same regulation in order to be able to study other elements.

Findings – The authors find that the success of microfinance is linked to its economic performance, in terms of both levels of per capita income and growth, as well as regulatory and public governance, with the amount of remittances being received in a country and with life expectancy at birth.

Research limitations/implications – Different sources provide different data. So, the findings may not be robust but it is the best available data.

Practical implications – The data shows a high correlation between aid and the development of microfinance and also more so between remittances and the growth of this sector. This has some implications for policies aiming at developing entrepreneurship through microfinance.

Originality/value – Most papers when looking at the success of microfinance across regions have failed to take into account differences in cultures and regulations; thus there is a residual bias. The paper's originality stems from the fact that it explains the success of microfinance while controlling for cultural and regulatory factors, and also goes into public governance indicators. This kind of comparative institutional analysis has not been performed for this region.

Keywords: Economic development, Institutional analysis, Microfinance, Public governance, Regional development, Regulation, West African economic and monetary union

JEL Classification: O1, O17, O55, G2, G28, G38