Profit orientation of microfinance institutions and provision of financial capital to business start-ups

Abu Zafar M. Shahriar, Susan Schwarz, Alexander Newman

Research output: Contribution to journalArticle

Abstract

This article examines whether the profit orientation of a microfinance institution (MFI) affects its decision to extend loans to business start-ups. Based on information from 198 MFIs in 65 countries, we show that for-profit MFIs are less likely to provide financial capital to business start-ups than their not-for-profit counterparts. This results from the adoption of a dominant ‘commercial’ logic by for-profit MFIs, which motivates them to maximize profit by extending loans to less risky ventures with mature projects. In contrast, a dominant ‘development’ logic motivates not-for-profit MFIs to alleviate poverty through supporting the creation of new ventures. The use of a propensity score matching technique to correct for any potential endogeneity problem provides us with greater confidence that the suggested association is not a spurious correlation.
Original languageEnglish
Pages (from-to)532-552
Number of pages21
JournalInternational Small Business Journal
Volume34
Issue number4
Early online date2 Mar 2015
DOIs
Publication statusPublished - 1 Jun 2016

Fingerprint

Financial capital
Loans
Profit
Business start-ups
Microfinance institutions
Logic
Spurious correlation
Confidence
Endogeneity
Propensity score matching
Poverty
Venture
New ventures

Bibliographical note

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Keywords

  • business start-ups
  • institutional logics
  • microfinance
  • profit orientation
  • propensity score matching

Cite this

Shahriar, Abu Zafar M. ; Schwarz, Susan ; Newman, Alexander. / Profit orientation of microfinance institutions and provision of financial capital to business start-ups. In: International Small Business Journal. 2016 ; Vol. 34, No. 4. pp. 532-552.
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Profit orientation of microfinance institutions and provision of financial capital to business start-ups. / Shahriar, Abu Zafar M.; Schwarz, Susan; Newman, Alexander.

In: International Small Business Journal, Vol. 34, No. 4, 01.06.2016, p. 532-552.

Research output: Contribution to journalArticle

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