Profits and outreach to the poor: The institutional logics of microfinance institutions

Abstract

Few empirical studies have explored how microfinance institutions (MFIs) reach important social goals such as outreach to the poor. While MFIs have the dual goals of pursuing both social and economic values, the impact of their profitability on outreach can vary. Based on the institutional logics perspective, this study predicts that if MFIs follow commercial logic, they are more likely to pursue high profitability rather than to increase outreach; however, if MFIs follow social-welfare logic, they tend to tolerate relatively low profitability and try their best to extend outreach. Therefore, in the curve of distribution of MFIs’ profitability, there is an inverted U-shaped relationship between MFIs’ profitability and outreach to the poor. This relationship is further influenced by a state-level institution—the rule of law. For our empirical analyses, we use a data set of 3,785 organization-year observations from 1,129 MFIs across 98 countries. The results of multilevel mixed models are consistent with our predictions.