Performance of Microfinance Institutions in Muslim Countries

Posted: 29 Nov 2018

See all articles by M. Kabir Hassan

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Ali Ashraf

Frostburg State University

William Hippler

University of New Orleans - Department of Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2014

Abstract

Purpose – The aim of the paper is to analyze whether performance measures and their factors for microfinance institutions (MFIs) in Muslim countries are significantly different from those in their non-Muslim counterparts, central to the Islamic scholars' argument that religious and cultural norms in Muslim countries may drive the preference of Islamic microfinance over conventional microfinance.

Design/methodology/approach – Using a cross-sectional dataset of 2,138 firm-years for 754 different MFIs across 83 countries, 33 Organization of Islamic Conference (OIC) member Muslim countries and 50 non-member countries, we analyzed the MFI performance based on three sets of measures: outreach, loan recovery and profitability and overall financial performance measures, with respect to two sets of explanatory variables, namely, country-specific and firm-level variables.

Findings – Results show that country gross domestic product size is positively related with profitability, and the percentage of women borrowers is also significant in driving loan recovery and firm profitability in the OIC sample, but they are otherwise not significant for the rest of the world sample.

Practical implications – This study contributes to the understanding of the core argument in the motivation of Islamic MFIs, which is whether cultural and religious factors are important for MFI success in Muslim countries.

Originality/value – This study introduces a variable that measures the difference between a country's independence year and their OIC membership year as a proxy for the “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 among a country's religious inclination and loan loss ratios and loan provisions are also consistent with the moral hazard hypothesis that few religious communities may be more prone to default.

Paper type - Research paper

Keywords: NGO, Microfinance Institutions, Foreign Aid, Non-Profit Organizations

JEL Classification: G21, L31, F35

Suggested Citation

Hassan, M. Kabir and Ashraf, Ali and Hippler, William, Performance of Microfinance Institutions in Muslim Countries (2014). Available at SSRN: https://ssrn.com/abstract=3263334

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Ali Ashraf

Frostburg State University ( email )

Frostburg, MD 21532
United States

HOME PAGE: http://www.frostburg.edu/dept/mktfin/department-faculty/dr-ali-ashraf/

William Hippler

University of New Orleans - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

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