Recent research suggests that many microfinance institutions increasingly focus on financial performance at the expense of the social component of their dual objectives. Existing studies typically assume that capital providers and managers mainly drive this so-called mission drift. In this study, we investigate whether ‘personal mission drift’ at the credit officer level can further explain the reduced emphasis on poorer clients among microfinance institutions. We present both qualitative and quantitative evidence that more experienced credit officers tend to serve fewer vulnerable (...) clients. Specifically, we show that all else being equal, credit officer experience is negatively correlated with the provision of small loans, loans to young clients, and loans to clients with disabilities. Our qualitative analysis suggests that perceived client risk and preferences for increased time efficiency mainly drive more experienced credit officers’ relative neglect of more vulnerable clients. This drift appears to be reinforced by the industry’s incentive schemes. Therefore, credit officer incentives and training should be designed to prevent this mission drift, which is observed at the microfinance institution level but is actually initiated at the credit officer level. (shrink)

Social enterprises in the microfinance industry need to adhere to both financial and social demands. Critics argue that there is a mission drift away from the social mission, and this has motivated the introduction of social rating agencies to strengthen the business ethics of microfinance institutions. Using a global dataset of 204 socially rated MFIs from 58 countries, we assess the factors that drive the social performance ratings of MFIs. Overall our results show that social ratings of MFIs are significantly (...) related to financial performance, greater outreach especially in rural areas, well-defined social objectives, staff commitment, service quality and an enhanced customer service. We observe that various rating agencies attach different importance to each of the social indicators. The public policy implication is that social rating agencies need to become more transparent, to reduce the information asymmetries between heterogenous socially motivated investors and the focal MFI. (shrink)

Drawing on a global sample of microfinance institutions (MFIs), this paper offers insights into the trade-off versus synergy debate of adopting multiple institutional goals in hybrid organisations. Additionally, it unravels which organisation- and country-specific determinants associate with top joint performance using machine-learning techniques. We find that the synergy versus trade-off debate is not dichotomous. Rather, MFIs can be strong both socially and financially but not while charging low interest rates. In our sample, 17% of MFIs serve a low-income clientele in (...) need with a diverse range of services while remaining financially sustainable and ask a close-to-average interest rate. These organisations are larger and more mature as well as financially prudent in that they minimize both financial and credit risk. Moreover, they are located in countries where their services can create larger benefits regarding their underlying goals. (shrink)