Abstract
Microfinance institutions (MFIs) are hybrid organizations 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 differentiating factor. Specifically, we find that financial performance is more positively related to subsequent social performance in for-profit MFIs than in nonprofit ones. 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 better in translating social impact into subsequent financial success but worse in converting financial success to subsequent social impact than for-profit MFIs. 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.
Notes
Acknowledgments
The authors would like to acknowledge all the valuable comments and feedback provided by participants in the International Symposium on Social Entrepreneurship (ISSE) 2016 and ARNOVA-ASIA 2017.
Notes
1 Notably, some social enterprises may even have a triple bottom line, including environmental impact as well as financial sustainability and social impact.
2 To reduce the endogeneity concern suggested by Garcia-Castro et al. (Citation2010), we also performed the analysis using the vector auto regression (VAR) structural model to estimate the reciprocal relationship between financial and social performance. We find that the signs of all the reciprocal coefficients are consistent with our main results here. However, owing to the unbalanced panel in our sample, we lost a lot of statistical power because about half of the observations had to be dropped from the VAR model. Hence, we did not include those results here, but they are available upon request.
Additional information
Notes on contributors
Swee-Sum Lam
Swee-Sum Lam is Associate Professor in the Department of Finance, and Director of the Asia Centre for Social Entrepreneurship and Philanthropy at the NUS Business School, the National University of Singapore, Singapore.
Weina Zhang
Weina Zhang is Senior Lecturer in the Department of Finance, NUS Business School at the National University of Singapore, Singapore.
Achsah X. Ang
Achsah X. Ang is the Librarian with the Asian Pastoral Institute Ltd., Singapore.
Gabriel H. Jacob
Gabriel H. Jacob is Research Fellow in the Information Technology and Operations Management, Nanyang Business School at the Nanyang Technological University, Singapore.