Abstract
We examine whether the performance of a microfinance institution (MFI) is affected by the political ideology of the government of its host country. Using data on 619 MFIs in 75 countries, we show that in countries with a left wing government, MFIs enjoy a higher portfolio growth relative to the MFIs in countries with a right wing or a centrist government. MFIs that operate in a left wing regime have lower operating costs, lower default costs, and lower average costs of funds. However, despite the lower costs, these MFIs are not more selfsustainable because they generate less interest incomes. MFIs earn even lower interest incomes when they operate in a low income-country under a left wing government. Our results survive extensive robustness tests. JEL classification: G21, P26, O16.
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