Performance of Microfinance Institutions in Muslim Countries
Humanomics, Vol. 30(2), p. 162-182, 2014
33 Pages Posted: 3 Apr 2017
Date Written: 2014
Purpose – Central to the Islamic scholars’ argument that religious and cultural norms in Muslim countries may drive preference of Islamic microfinance over conventional microfinance, we analyze if performance measures and their factors for Microfinance Institutions (hereafter referred as MFIs) in Muslim countries are significantly different from their non-Muslim counterparts.
Design/methodology/approach – Using a cross-sectional dataset of total 2138 firm-years for 754 different MFIs across a total of 83 countries; 33 OIC (Organization of Islamic Conference) member Muslim countries and 50 non-members countries; we analyze MFIs performance based on three sets of measures: a) outreach, b) loan recovery and profitability, and c) overall financial performance measures; with respect to two sets of explanatory variables: i) country specific and ii) firm-level variables.
Research limitations/implications – Results show that country GDP size is positively related with profitability and percent of women borrower is also significant for loan recovery and firm profitability in the OIC sample; while otherwise not significant for rest of the world sample.
Practical implications – This study contributes to the understanding of the core argument in the motivation of Islamic MFIs, whether cultural and religious factors are important in MFIs success in Muslim countries.
Originality/value – This study introduces difference between the country independence year and country OIC membership year as a proxy for “country religious inclination” of a Muslim country. Results suggest that countries with delayed membership in OIC show lower inclination to popular Islamic beliefs and higher market penetration of conventional Microfinance outreach. Positive relationships of country religious inclination variable and loan loss ratio and loan provision are also consistent with the moral hazard hypothesis that less religious community may be more prone to default.
Keywords: Micro Finance Institutions, Nonprofit Institutions, NGOs, Foreign Aid
JEL Classification: G21, L31, F35
Suggested Citation: Suggested Citation