Roy Mersland

Do Powerful CEOs Determine Microfinance Performance

Recently, microfinance has been coming under public and media attacks. The microcredit crisis following from microfinance-induced suicides in 2010 in the Indian state of Andhra Pradesh indicates that weak corporate governance and imprudent risk taking have far-reaching consequences. Yet, analyses of corporate governance mechanisms among microfinance institutions (MFIs) remain underdeveloped. As a response, this study examines the impact of CEO power on MFI risk taking by deriving explicit predictions of this effect from a characterization of the microfinance industry. Based on a sample of 280 microfinance institutions, our results suggest that powerful CEOs of microfinance non-governmental organizations (NGOs) have more decision-making freedom than powerful CEOs of other types of MFIs. This induces them to make more extreme decisions that increase risk. Furthermore, the decision-making freedom powerful CEOs have in NGOs appears to lead to worse decisions, because the presence of powerful CEOs in microfinance NGOs is associated with lower performance.

Focus on Women in Microfinance Institutions

Abstract We provide empirical evidence on focusing on women in microfinance and its consequences for microfinance institutions (MFIs). Based on a global dataset, the results indicate that a focus on women is associated with group-lending methods, international orientation, smaller loans, and non-commercial legal status. We find that a focus on women significantly improves repayment but does not enhance overall financial performance because of higher relative costs. Moreover, the higher relative costs do not stem from servicing women per se but from the smaller loans offered to women and the group-lending methodology practised by MFIs focusing on women.

An Analysis of the Drivers of Microfinance Rating Assessments

Rating assessments of microfinance institutions (MFIs) are claimed to measure a combination of creditworthiness, trustworthiness, and excellence in microfinance. Using a global data set covering reports from 304 microfinance institutions, this study suggests that these ratings are mainly driven by size, profitability, and risk. The overall results suggest that microfinance ratings convey information similar to that communicated by traditional credit ratings. All results are remarkably consistent across rating agencies. The determinants of the rating grades are found to be the same in all subsamples.

Performance and international investments in microfinance institutions

Introduction During recent decades, the provision of microfi nance services to poor families and micro-entrepreneurs has evolved to become a global industry. Until recently, donations and subsidies have been the main source of funding for microfi nance institutions (MFIs). Lately, however, the growth of the industry and the pressure by donors toward fi nancial sustainability has pushed MFIs to turn to international capital markets. Moreover, international funding is regarded by many as essential to fuel the growth of the sector, arguing that only international capital markets can handle the estimated US

The Impact of Entrepreneur‐CEOs in Microfinance Institutions: A Global Survey

200 billion needed to reach the potential demand for microfi nance services worldwide (Swanson, 2008). Recent academic research (Mersland et al., 2011) has also shown that internationalization, notably through investments, can have an overall positive infl uence on the social performance of MFIs. Th e development of specialized investment funds, called microfi nance investment vehicles (MIVs), illustrates the emergence of this new specialized capital market. MFIs typically have both fi nancial and social objectives (Armendariz and Morduch, 2010) and attract funding from actors with varying degrees of profi t motivation, from purely development-oriented to maximum profi t-oriented (Goodman, 2004). In 2010, the 95 MIVs in operation managed US

Microcredit for Self-Employed Disabled Persons in Developing Countries

8 billion coming from public and private institutional investors (42%), individuals (34%), development institutions (21%), and others (3%), mostly invested in the form of loans to MFIs (MicroRate, 2011; Reille et al., 2011). The international fi nancing of microfi nance has become a new specialized market which attracts investors with varying degrees of profi t motivation.

Market opportunities for microfinance institutions

Microfinance is a global high–growth industry, in which entrepreneurship is prevalent and substantial. Based on the theoretical argument that microfinance entrepreneur–chief executive officers (CEOs) are “motivated agents” with a unique ability to hire and socialize mission–oriented staff, we hypothesize that these CEOs produce more sustainable microfinance institutions (MFIs) with better social performance and lower costs. This study utilizes data from 295 MFIs in 73 developing countries, assessed between 1998 and 2010. Our empirical evidence suggests that entrepreneur–managed MFIs feature higher social performance, greater financial sustainability, and lower costs.

What Drives the Microfinance Lending Rate

Microcredit has become a popular instrument to promote economic empowerment among poor entrepreneurs, and is increasingly being recommended to improve economic rehabilitation among persons with disabilities. However, the majority of the advocates of microcredit for persons with disabilities seem not to be informed on the involved “rules of the game”. At the same time the microfinance community lacks information on disability issues. In this report we aim on closing the gap in knowledge and culture between the disability- and the microfinance communities. We apply resource based theory to analyze when microcredit for disabled persons is an appropriate tool and when it is not. We argue that asymmetric information between microfinance institutions and the disabled population is probably the main hindrance for increased penetration of microcredit services to disabled persons. We recommend disabled entrepreneurs with the necesarry resource base to be included as regular clients in mainstream MFIs or as regular members in self helping microfinance systems like ROSCAs. We provide lists of recommendations that are both easy to understand and to apply for MFIs, DPOs and donors. Due to the lack of theoretical and empirical knowledge available we see this report as a starting point and we advocate for increased research efforts within this field.

Audit Quality and Corporate Governance: Evidence from the Microfinance Industry

Taking a business scholars standpoint I assess the future of the microfinance industry. The basic question I try to answer is why the microfinance market continues to grow while public support for the industry is shrinking. I identify six underlying forces – demographic transition, reduced poverty, urbanization, economic growth, technological innovations, and shifts in microfinance paradigms – that drive the growth of the microfinance industry. Furthermore, I identify six non-traditional microfinance markets that may present interesting opportunities in the years to come: insurance, housing, small and medium enterprise lending, savings, micropensions, and microfinance in high-income countries. I conclude the article highlighting that policymakers, regulators, and international support organizations may encourage or hamper the future of microfinance as outlined in this article.

Do Microfinance Rating Assessments Make Sense? An Analysis of the Drivers of the MFI Ratings

Is the microfinance institution (MFI) able to charge unduly high lending rates and obtain a profitability incompatible with perfect competition? We use a global panel data set of MFIs. The Panzar and Rosse revenue test in static and dynamic versions is employed, together with analyses of price (the lending rate) and return on assets. We control for microfinance specific variables such as average loan and institutional background variables, and also perform estimations in sub-samples of ownership types, regulation, and founder type. We find that the average MFI does not enjoy monopoly market power in its market, but cannot reject that perfect competition or monopolistic competition are better descriptions of the MFIs average market type. The conclusions hold up in both static and dynamic regressions, as well as in different sub-samples.