Reciprocity between Financial and Social Performance in Microfinance Institutions

Public Performance and Management Review, Forthcoming

29 Pages Posted: 25 Mar 2019 Last revised: 28 Mar 2019

See all articles by Swee Sum Lam

Swee Sum Lam

National University of Singapore - NUS Business School

Weina Zhang

Department of Finance, National University of Singapore; National University of Singapore Risk Management Institute

Achsah X. Ang

Asian Pastoral Institute

Gabriel Henry Jacob

Nanyang Technological University (NTU)

Date Written: March 1, 2019

Abstract

Microfinance institutions (MFIs) are hybrid organisations with the dual mission of financial sustainability and social purpose. However, there is little empirical evidence on how the two missions may affect each other intertemporally. In this study, we test the lead-lag reciprocal relation between financial and social performance in a sample of 852 unique MFIs across 96 countries from 2005 to 2012. Although we find an insignificant reciprocal relation between financial and social performance in the full sample, a significant finding emerges when we employ the profit status of MFIs as a discriminating factor. Specifically, we find that financial performance is more positively related to subsequent social performance in for-profit MFIs than in nonprofit ones. This suggests that the financial success of for-profit MFIs contributes to their achievement of social impact. On the other hand, we find a positive relationship between social performance and subsequent financial performance for nonprofit MFIs but not for for-profits. These findings suggest that nonprofit MFIs are more effective than for-profit MFIs in translating social impact into subsequent financial success. Overall, our results uncover different strengths and weaknesses of nonprofit and for-profit MFIs in pursuit of their dual mission over time and offer new insights for developing a more sustainable microfinance industry going forward.

Keywords: Social enterprises, financial sustainability, social mission, reciprocity, profit status, microfinance institutions

JEL Classification: A13, C31, L3, P31

Suggested Citation

Lam, Swee Sum and Zhang, Weina and Ang, Achsah Xiaohui and Jacob, Gabriel Henry, Reciprocity between Financial and Social Performance in Microfinance Institutions (March 1, 2019). Public Performance and Management Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3344877

Swee Sum Lam

National University of Singapore - NUS Business School ( email )

1 Business Link
Singapore, 117592
Singapore
+65 6516 3037 (Phone)
+65 6779 2083 (Fax)

HOME PAGE: http://www.bschool.nus.edu

Weina Zhang (Contact Author)

Department of Finance, National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
65168120 (Phone)
67792083 (Fax)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/108-weina

National University of Singapore Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

Achsah Xiaohui Ang

Asian Pastoral Institute

Singapore

Gabriel Henry Jacob

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

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