Ronny Manos

How do Small Firms in Developing Countries Raise Capital? Evidence from a Large-Scale Survey of Kenyan Micro and Small-Scale Enterprises

We utilize a unique comprehensive dataset, drawn from the 1999 baseline survey of some 2000 micro and small-scale enterprises (MSEs) in Kenya. We analyze the financing behavior of these enterprises within the framework of a heterodox model of debt-equity and gearing decisions. We also study determinants of the success rate of loan applications. Our results emphasize three major findings. First, MSEs in Kenya obtain debt from a wide variety of sources. Second, debt-equity and gearing decisions by MSEs and their success rates in loan applications can all be understood by relatively simple models which include a mixture of conventional and heterodox variables. Third, and in particular, measures of the tangibility of the owners assets, and the owners education and training have a significant positive impact on the probability of borrowing and of the gearing level. These findings have important policy implications for policy makers and entrepreneurs of MSEs in Kenya.

Key Issues in Assessing the Performance of Microfinance Institutions

Abstract The microfinance revolution and the tremendous growth of the industry have drawn attention to performance assessment of microfinance providers, the operations of which are often supported by substantial public funds. In this paper we discuss five related issues: a) the search for an adequate measure of financial sustainability, b) the trade-off between outreach and sustainability, c) the question of how to determine the opportunity cost of concessionary borrowings, d) the conceptual framework of performance assessment, and e) the integration of saving services into performance assessment and subsidy dependence measures.

Measuring the performance of microfinance providers: an assessment of past and present practices

Measuring the performance of providers of financial services to poor individuals and to micro and small enterprises is a relatively new phenomenon, and the paper discusses the reasons for this. It is argued that using traditional financial ratios to assess performance of microfinance institutions (MFIs) is inappropriate, owing to the high level of subsidies popular in the industry, which these measures ignore. In contrast, two performance measures that are becoming increasingly popular in the microfinance industry do attempt to adjust for subsidies granted to MFIs. These two performance measures, financial self sufficiency (FSS) and the subsidy dependence index (SDI), are compared and contrasted. The paper points to the superiority of the SDI over the FSS, and suggests the use of the outreach index alongside the SDI, to measure the degree to which the MFI has achieved social objectives.

Information Transparency and Agency Costs in the Microfinance Industry

The microfinance sector is an important ingredient in the process of global integration of the financial markets. The rapid development of the microfinance sector in many developing countries motivated prominent donors to develop systems for standardised and comparable reporting of financial and social performance. This effort has yielded substantial results in terms of promoting transparency, reducing information asymmetries and mitigating agency conflicts in an industry vulnerable to such problems. The article discusses these problems and the steps initiated by the industry to overcome them. We also point to conflicts of interests that may persist because the information platform and the indicators that are being reported are managed and selected by the industry itself. In particular, we use a common indicator of performance, the Operational Self-Sufficiency Index, to highlight the tendency of selected indicators to overstate performance and understate subsidies and costs.

Dilemmas and Directions in Microfinance Research

Associating microfinance with alleviation of poverty has become a truism. Subsequently, the microcredit movement has enjoyed wide support from governments, international development agencies, wealthy philanthropists, renowned financial institutions and even the Noble Peace Prize Committee. Indeed, in awarding the Nobel Peace Prize to Muhammad Yunus and Grameen Bank in 2006, the committee noted that ‘Yunus has, first and foremost through Grameen Bank, developed micro-credit into an ever more important instrument in the struggle against poverty’. Consistent with this trend, success stories abound on the internet and in countless reports of microentrepreneurs who set up successful businesses, lifting their families and neighbouring poor out of poverty.

National culture and national savings: is there a link?

We study the effect of national culture on economic decisions, focusing on GLOBE cultural dimensions of uncertainty avoidance and future orientation. Specifically, we study the effect of divergence between cultural values and practices (societal aspirations), on the aggregate savings decision. Using the life-cycle model of savings as our basic model, we find that societal aspirations are important in explaining national savings behavior. In particular, we show that societal aspirations relating to future orientation and uncertainty avoidance have a positive effect on the rate of savings. We interpret our findings to indicate that such societal aspirations lead to mistrust in the societal arrangements and institutions, and induce savings as a means of securing the future and reducing uncertainty. To substantiate this interpretation, we utilize the microfinance industry; showing that high societal aspirations are associated with preference for savings through member-owned microfinance institutions (MFIs) over savings through non-member-owned MFIs.

Corporate Social Action, Social and Financial Performance, Institutions and Governance: Concluding Remarks

This book reviews the implications for financial and social performance of corporate social responsibility and action (CSRA) in developed and developing countries and in environmentally hazardous industries. It also explores key aspects of CSRA, including internal and external factors that influence it, such as features relating to corporate governance and to the institutional environment within which firms operate. The analyses have important implications for the broader literature on CSRA, which seeks to understand what factors determine the outcomes of corporate social action (CSA) and to disentangle the complex relationship between CSA and corporate social and financial performance. The many themes covered in the book converge along three key aspects: the relationship between CSRA and performance; the impact of the institutional context on corporate engagement in CSRA; and the interactions between CSRA and corporate governance.

Corporate Social Action and Newspaper Media: The Role of Geopolitical Risk

Recently, both managers and scholars have come to appreciate that firms must create shared social value (Porter and Kramer, 2011). Indeed, firms engage in social issues and undertake social actions to signal to their stakeholders both the social quality of the firm and its commitment to creating shared social value.

Introduction: Aspects, determinants and outcomes of Corporate Social Action

Corporate social action (CSA) refers to corporate actions that aim at furthering the social good. Corporate social performance (CSP) is the observable outcomes related to CSA (Orlitzky et al., 2003; Wood, 2010). The decision to engage in CSA, and the debates regarding its costs, benefits and implications to corporate performance represent a demanding issue for scholars and managers. The extant research is inconclusive regarding the causal relations between CSA, CSP and corporate financial performance (CFP), despite voluminous empirical and theoretical studies devoted to the issue (for a review, see Margolis and Walsh, 2001; Orlitzky et al., 2003). However, in practice, many firms engage in CSA as part of their value creation strategy, and many studies suggest a positive link between CSA and CFP (Henisz et al., 2013; Margolis et al., 2009; Margolis and Walsh, 2003).

Challenges and Innovations in Promoting Microfinance

The competitive advantage and the distinctive feature of microfinance relative to conventional lending and saving institutions lie in its core mission of providing access to financial services to those considered unbankable by the formal financial services industry. This is based on the idea of inclusion and on the belief that increasing access to financial services should encourage entrepreneurial activity, generate growth and contribute to the alleviation of poverty (Khavul et al., 2013). It is also generally accepted that providing the unbankable with access to financial services should contribute to the empowerment of weaker populations and help them to build individual and social capital (Howson, 2012; Bateman, 2010).