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Innovations and the Financial Performance of Microfinance Institutions: A Global Evidence

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Social Purpose, Commercialization, and Innovations in Microfinance

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Abstract

To provide uninterrupted financial and non-financial services to the poorer people of the society, Microfinance Institutions (MFIs) need to achieve better financial performance in their operation. In this respect, this chapter explores the relationship between several innovations undertaken by the microfinance industry in recent years and its financial performance objectives. In so doing, we obtained an unbalanced panel data of 2,937 global MFIs, covering the period 2000–2018. Subsequently, the data were analyzed using conventional regression-based techniques (i.e., Pooled OLS and REM), while Generalized Method of Moments and Hausman-Taylor approach was employed to address the potential endogeneity. Our findings are somewhat heterogenous, with limited types of innovations exhibiting a proxy and technique-specific positive influence on the financial performance of MFIs. Notably, we observed that MFIs of certain legal status (eg., bank, rural bank, non-bank financial institutions and credit union/cooperative) showed higher operating and per borrower cost, albeit their increased susceptibility to mission drift compared to the NGO-MFIs.

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Notes

  1. 1.

    Break-even is achieved when the total cost is equal to total revenue.

  2. 2.

    Tsukada (2014) suggested this finding based on the studies of Giné and Karlan (2014) and Carpena et al. (2012).

  3. 3.

    According to Christensen et al. (2006), catalytic innovations are those innovations that are scalable, sustainable and offer system-changing solutions to unaddressed societal challenges/ issues/needs.

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  1. School of Management, Universiti Sains Malaysia, George Town, Penang, Malaysia

    Md Aslam Mia

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Mia, M.A. (2022). Innovations and the Financial Performance of Microfinance Institutions: A Global Evidence. In: Social Purpose, Commercialization, and Innovations in Microfinance. Springer, Singapore. https://doi.org/10.1007/978-981-19-0217-8_6

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