A State-Oriented Stakeholder Approach: Understanding the Ethics of Microfinance in Emerging Economies

Abstract

The integrity of microfinance is in question. Unethical practices have led many to question its value. Yet, research and countless narratives suggest positive, though modest, effects. I argue that a false dichotomy of support or opposition for microfinance has emerged; a tendency that ignores the microfinance variation. Instead, this article asks: what is the role of the state in influencing stakeholder salience and how does this process affect the ethics of microfinance? This article develops a new approach—a state-oriented stakeholder approach (SOSA)—by weaving together political economy and stakeholder theory literatures. This approach shows how the state, a unique stakeholder, uses regulation to augment or abate other stakeholders’ salience. It helps explain variation in stakeholder salience and informs a typology of microfinance developed here—state-supported, bottom of the pyramid, and hybrid. Drawing from original fieldwork, this typology provides a more nuanced framework to understand how the state influences microfinance institutions’ practices by affecting stakeholder salience.

Keywords: Business ethics, stakeholder approach, political economy, microfinance, business and society