Abstract
This paper empirically examines whether competition (measured by using the new measure of competition, the Boone Indicator) moderates the relationship between Microfinance Institutions’ (MFIs) social and financial performances using data from 183 Indian MFIs over the period 2005–2014.The findings indicate that MFIs’ social and financial performances have a positive significant relationship. Moreover, the form of the relationship is both lead-lag and cotemporal. The Indian microfinance market was very competitive over the period 2005–2014. The empirical findings show that competition positively moderates the relationship between MFIs’ social and financial performances. More precisely, the empirical analysis provides evidence that the association between MFIs’ depth of outreach and operational self-sufficiency is conditional upon competition. These results suggest that in a competitive market, the more MFI deepen their depth of outreach, the higher contribution it has to their operational self-sufficiency.
Highlights
Microfinance is the provision of financial service to the poor and low-income people (Mersland, 2011)
McIntosh and Wydick (2005) analyze the impact of competition on clients’ behavior and the results show that raising competition worsens delinquency rates
The Hausman Test has applied to verify whether the error term is correlated with the predictor variables, and the result shows that the P-Value is significant, the PValue of the Hausman test is < 0.05
Summary
Microfinance is the provision of financial service to the poor and low-income people (Mersland, 2011). These financial services include savings, credit, insurance, and payment services (Ledgerwood, 1999). Microfinance Institutions (MFIs) have unique features (i.e. in the form of product or service types, and lending methodologies) that distinguish them from formal banking institutions (Quayes, 2012). MFIs are created to fill the market segment that has long been unveiled by the conventional banking sector (Vanroose & D’Espallier, 2013). The Microfinance industry has been growing rapidly in developing countries (Assefa, Hermes, & Meesters, 2013; Kar, 2016), and has gotten high recognitions from international actors, donors, and governments (Olsen, 2010). The total clients served by the sector were reached over 205.3 million in 2012 (Maes & Reed, 2012)
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