An investigation of mission drift in Indian MFI

Abstract

PurposeThe purpose of this paper is to investigate empirical evidence of drift from social goals (mission drift) among Indian microfinance institutions (MFI).Design/methodology/approachThe study used multiple proxies, namely, loan size, operating efficiency and equity as dependent variables to avoid the complexities in interpreting mission drift solely through loan size. The study uses data from 211 Indian MFI for the period of 1985–2014. The dynamic panel data estimation method of Arellano and Bond (1991) is used for the analysis to avoid endogeneity issues in the data estimation.FindingsThe study finds that efficiency and change in average loan balance are characterized by higher lending rates and higher profitability to firms. Higher lending rates imply poverty premium which means that poor pay more for the same services than their rich counterparts. Equity results in movement toward safer borrowers and a consequent mission drift.Research limitations/implicationsThe study uses self-reported data from organizations provided through Microfinance Information Exchange.Social implicationsAccess to credit to the poor is an important poverty alleviation goal and present study will contribute toward policy formation in institutional provision of credit and banking services to the poor.Originality/valueTo the best of the authors’ knowledge, present study is the first to use alternative proxies in the form of operating efficiency and equity to explore relationships between the variables that can help to better understand the phenomenon of mission drift.