Does Competition Enhance Double Bottom Line Performance in Microfinance Institutions?

Posted: 23 Feb 2020

See all articles by Shahadat Hossain

Shahadat Hossain

Curtin University; University of Chittagong

Jeremy Galbreath

Curtin University - Centre for Research in Applied Economics

Mostafa Monzur Hasan

Macquarie University

Trond Randoy

University of Agder - University of Agder, School of Busines and Law, Students

Date Written: January 26, 2020

Abstract

This paper investigates how competition affects the double-bottom-line performance of microfinance institutions (MFIs). While classical economic theory highlights that competition enhances efficiency and benefits both customers and firms, we argue that this is unlikely to apply to institutions operating in socially oriented industries, such as microfinance. Using a cross-country dataset of 4,576 MFI-year observations (1,139 unique MFIs) operating in 59 countries over a 10-year period (2005–2014), we find that competition has an adverse effect on MFIs’ economic sustainability and that competition undermines their breadth of outreach but enhances their depth of outreach. These results are robust to alternative specifications of competition and to the use of a two-stage least squares (2SLS) analysis to alleviate the endogeneity concern. The findings from our analysis have important implications when considering the regulation of MFI competition, especially in the light of the recent turmoil of MFI markets in some developing countries.

Keywords: Competition; Boone indicator; Microfinance institutions; Performance; Sustainability

JEL Classification: G21, L10

Suggested Citation

Hossain, Shahadat and Hossain, Shahadat and Galbreath, Jeremy and Hasan, Mostafa Monzur and Randoy, Trond, Does Competition Enhance Double Bottom Line Performance in Microfinance Institutions? (January 26, 2020). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3525639

Shahadat Hossain

Curtin University ( email )

Kent Street
Bentley
Perth, WA WA 6102
Australia

University of Chittagong ( email )

Department of Finance
University of Chittagong
Chittagong, 4318
Bangladesh

Jeremy Galbreath

Curtin University - Centre for Research in Applied Economics ( email )

GPO Box U1987
Perth, Western Australia 6845
Australia

Mostafa Monzur Hasan (Contact Author)

Macquarie University ( email )

Level 3, Building 4ER,
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/mostafa-hasan

Trond Randoy

University of Agder - University of Agder, School of Busines and Law, Students

Serviceboks 422
Kristiansand, N-4604
Norway

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