Microfinance Research Articles

The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan

The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan

The nexus between institutional quality and the financial sustainability of microfinance institutions

The nexus between institutional quality and the financial sustainability of microfinance institutions

Impact of Board Characteristics on Firm Performance: Evidence from Ethiopian Microfinance Institutions

Impact of Board Characteristics on Firm Performance: Evidence from Ethiopian Microfinance Institutions

Assessing Beneficiaries Perceptions of Service Delivery in Microfinance Institutions

Commercial banks and recently founded MFIs are two major competitors for microfinance institutions (MFIs). The same microfinance clients are now being targeted by an increasing number of MFIs. The demand for microfinance consumers has increased, which has led to a rise in the sophistication of the services that these customers expect from MFIs. MFIs, however, are putting a lot of effort into keeping and satisfying their clients. MFIs must pay closer attention to the priorities and preferences of their customers in order to comprehend their demands and preferences in the current competitive climate. Today, obtaining customer happiness is crucial to accomplishing MFI goals. As can be seen from the foregoing, MFIs' ability to succeed depends on their ability to do business with their clients. In light of this context, the article dives to assesses beneficiaries' opinions on the services of MFIs', microfinance and other associated services.

Factors Influencing Public Interest in Using Sharia Microfinance Institution Produsts in Lamongan

Islamic Microfinance Institutions (IMI) have a strategic role with their main function being to collect funds from people with excess funds and channel the funds to people in need effectively and efficiently. The existence of IMI is expected to help people, especially those from the lower middle class, in gaining access to funding. However, the perception and attitude of the community towards bank interests and the profit sharing system show diversity. Some people still choose to accept interest and consider it the same as the profit sharing system, so an analysis of factors that influence the community's interest in using IMI products is needed. The purpose of this study was to determine the effect of knowledge, promotion, service quality, and religiosity on the community's interest in using IMI products in Lamongan. The sample used was 100 samples selected using the purposive sampling method. The data was processed using multiple linear regression analysis techniques. The test results stated that partially and simultaneously, the variables of knowledge, service quality, promotion, and religiosity had a positive effect on the community's interest in using IMI products in Lamongan.

Critical development of Islamic financial technology ecosystem: lesson learned from financial technology literature

Purpose This study aims to draw lessons from the financial technology (FinTech) ecosystem literature through a systematic literature review. Design/methodology/approach This study systematically studied a sample of 134 articles from the Scopus database to assess the pattern of research development within the scope of the FinTech ecosystem over the last 15 years (2008–2023). Findings The results obtained indicated that the current research focus leads to several aspects: digital technology and financial inclusion, FinTech and customer behavior, FinTech ecosystem, business model, as well as aspects of governance and regulation. In the effort to develop Islamic FinTech, some aspects that might be targeted include aspects of business development and the Islamic FinTech ecosystem in general, extending financial inclusion to governance and managerial implementation of Islamic FinTech itself. Research limitations/implications This research has limitations because it did not focus on the study of more specialized sectors, such as insurance or microfinance institutions, in adopting FinTech, requiring the use of other specifications of institutions in addition to Islamic banking. Practical implications This research has substantial theoretical implications in mapping the intellectual structure of Islamic FinTech research, which has been underexplored by previous researchers, as well as providing essential information about which sectors should be prioritized to encourage inclusiveness and overall performance of financial institutions. Originality/value This research explores more deeply with a comprehensive approach so that it becomes a pioneer in the study of FinTech ecosystem literature for the development of Islamic FinTech.

Assessing the effect of motivation on employee retention in Zambian Microfinance Institutions, a case of EFC Zambia Financial Services

Assessing the effect of motivation on employee retention in Zambian Microfinance Institutions, a case of EFC Zambia Financial Services

Waqf and Microfinance Integration for Enabling Sustainable Financial Inclusion: Analysis of Sharīʿah Compliance

Purpose — Sustainability has remained one of the most significant challenges facing the microfinance industry, and Islamic microfinance is no exception. The need for Sharīʿah compliance poses an additional challenge for the Islamic microfinance industry. Many practitioners have argued that, in practice, social missions should be sacrificed for profitability so that microfinance institutions (MFIs) could achieve sustainability and competitiveness in the finance market. This paper investigates the potential of integrating waqf and microfinance to allay the challenge of balancing social responsibility (outreach) and financial sustainability within Islamic MFIs. Additionally, it analyses the Sharīʿah compliance requirements underpinning this integration. Design/Methodology/Approach — This study adopts a qualitative method of inquiry, utilising an inductive approach to understand the conceptual framework of waqf and financial inclusion and in discussing Sharīʿah compliance aspects of socially-oriented instruments in socio-economic development. Findings — The research finds some historical antecedents to evidence the inherent social mission of waqf which, if integrated with microfinance, ensures the sustainability of Islamic MFIs. This affirms that outreach and sustainability may not be mutually exclusive under waqf and Islamic microfinance integration. Originality/Value — This study, through historical antecedents and contemporary practices, establishes that waqf and microfinance integration can address the sustainability of the Islamic microfinance industry and preserve its social mission.

Does cooperative membership facilitate access to credit for women farmers in rural Kenya?

Potential borrowers' demand for credit is restrained by agricultural risk, while microfinance institutions favor male over female farmers because the latter have no collateral. We investigate whether women's membership in cooperatives facilitates access to credit. Primary data from Kenya were used. Descriptive statistics, propensity score matching, and probit regression methods were applied. The results show that 78 % of the respondents did not apply for credit mostly because of high interest rates and being risk-averse; while 60 % of those denied credit were due to lack of collateral. The estimates indicate that joining cooperatives increases the probability of female farmers' access to credit; transparency in cooperatives' financial activities increases the probability of accessing credit by 72 %. Given the core role of cooperatives, there is a need for a favorable environment in which cooperatives can form, develop, and thrive. Cooperatives need support from the government and development agencies to buffer their financial and management capacities and skills training. Subsequently bolstering women farmers' participation in cooperatives.

Creating Sustainability in Islamic Microfinance Institutions Based on a Networking Approach

Purpose — This study aims to find a sustainable development model for Islamic microfinance institutions (Islamic MFIs) based on Islamic networking and the critical factors that support their sustainability. Design/Methodology/Approach — This study uses a qualitative approach by conducting a literature review to find research directions and undertaking focus group discussions (FGD) with a network provider and Baitul Maal wat Tamwil (BMT) managers in Central Java. The FGD involved five stages. The first stage was carried out with a network provider (the Association of Baitul Maal wat Tamwil (or PBMTI)), and the second to fifth stages were carried out with BMT members of PBMTI as Islamic MFIs, whose implementation sequence was based on accreditation ranking (A, B, C, and D categories). The purpose of this grouping was to find the views of different stakeholders on the role of networks. Findings — This study found that Islamic networks have an important role in building the sustainability of Islamic MFIs. This important role is based on Islamic values (i.e., faith, morals, daʿwah (preaching), and social care) and the facilities provided in the network. Originality/Value — This study is unique as it explores the role of networks that develop Islamic values and provide various facilities to develop Islamic MFIs so that they can serve the community better and in a more sustainable way. Research Limitations/Implications — The FGD was conducted with representatives of BMT members of PBMTI whose number and opportunities for communication are limited. Therefore, more intensive studies are needed to determine the impact of the network on the members based on the programmes or facilities offered.

Does the Merger of the Indonesian Islamic Bank Matter for Its Social Mission of Economic Empowerment?

Research Originality: Economic empowerment through financing Micro Small Medium Enterprises (MSMEs) is one dimension of the social mission of sharia banking in Indonesia. The merger action of Bank of Sharia Indonesia (BSI) raises the question of whetherthe performance of economic empowerment has changed.Research Objectives: This research aims to analyse the differences in the BSI’s performance of economic empowerment during preand post-merger periods and analyse the issues and strategies for improving BSI's post-merger economic empowerment performance.Research Methods: It is a research using mixed method combining a quantitative explorative analysis approach using Wilcoxon Test, and a qualitative one using Analytic Network Process.Empirical Results: This research finds that BSI's economic empowerment performance has increased in terms of the quantity but decreased in terms of proportion in the post-merger period. ANP research demonstrates that risk management is a priority issue for the BSI post-merger period. The social mission of economic empowerment indicates several priority issues, namely, the relatively higher rate of profit margin than interest, the inadequate supervision model, the low rate of risk management literacy, and the relatively higher risk of profit loss sharing (PLS)-based financing. The strategy analysis indicates that policy intervention for BSI’s MSMEs financing is a top priority in improving the performance of its economic empowerment.Implications: This research recommends some recommendations for sharia banks’ MSMEs financing equivalent to the one of conventional banks. Economic digitalization as technological means to widen accessibility of economic empowerment and distribution segmentation focusing more on the halal sector.JEL Classification: A13, G21, G34How to Cite:Isman, A. F., & Hidayah, N. (2024). Does the Merger of the Indonesian Islamic Bank Matter for Its Social Mission of Economic Empowerment? Etikonomi, 23(2), 333 – 352. https://doi.org/10.15408/etk.v23i2.39810.

Profitability of microfinance institutions and borrowers: a systematic literature review

Profitability of microfinance institutions and borrowers: a systematic literature review

A Case Study on Micro Financial Institutions – Effective Tool for Alleviating Rural Poverty in India

Micro financial (MFI’s) are extremely important in helping the underprivileged and low-income people in a nation like India, where 70% of people reside in rural areas and 60% of people are employed in agriculture according to the data of World Bank. The case study aims to highlights significance of microfinance in developing nations like India, where a sizable portion of the populace lives in poverty and lacks access to regular banking services. The Self Help Groups (SHGs)-Bank Linkage Program and Microfinance Institutions (MFIs) are the two main techniques that define the microfinance sector in India. The Self Help Groups (SHGs)-Bank linkage initiative, which aims to give the unreached poor a cost-effective way to receive financial services, is the main player in microfinance in India. The purpose of this case study is to assess the current state and contribution of microfinance to India's growth by elevating the economic conditions of rural population. Keywords: MFI’s, SHGs (Self Help Groups), Poverty Alleviation.

Banks, microfinance institutions and fintech: how the ratio of male and female entrepreneurs moderates their capacity for financial inclusion

Banks, microfinance institutions and fintech: how the ratio of male and female entrepreneurs moderates their capacity for financial inclusion

Information Communication Technology Adoption and Service Delivery by Microfinance Institutions in Nandi County: A Case Study of Juhudi Kilimo Limited

The Study Aimed To Investigate The Factors Affecting The Adoption Of Information Communication Technology In Service Delivery By Microfinance Institutions In Nandi County With Juhudi Kilimo Limited As The Main Point Of Focus. The Investigation Aimed To: Examine Whether Ict Illiteracy Affects Service Delivery By Microfinance Institutions In Nandi County, Find Out How Technological Infrastructure Has An Effect On Service Delivery By Microfinance Institutions In Nandi County, Ascertain How The Cost Of Adoption Has An Effect On Service Delivery By Microfinance Institutions In Nandi County, And Examine How Perceived Usefulness Has An Effect On Service Delivery By Microfinance Institutions In Nandi County. The Research Considered A Population Of 200 Employees And Clients Of Juhudi Kilimo In Nandi County. The Study Employed A Simple Random Sampling Technique. The Technology Acceptance Theory Constituted The Foundations Of The Research. The Research Employs A Descriptive Design To Examine The Characteristics Of The Target Population, Consisting Of It Officers, Finance Officers, Operations Officers, Research And Development Officers, Internal Auditors, And Clients Of Juhudi Kilimo. A Representative Sample Of 60 Respondents Was Selected Randomly. Data Collection Involved Questionnaires, Validated Through A Pilot Study And Expert Evaluation. The Research Also Provided A Robust Framework For The Study, Ensuring Methodological Rigor And Ethical Adherence In Investigating Ict Adoption's Impact On Mfi Service Delivery. The Study Revealed Strong Positive Correlations Between Ict Illiteracy And Adoption Costs (0.983), Technological Infrastructure (0.310), And Perceived Usefulness (0.459). Technological Infrastructure Demonstrated A Strong Positive Correlation With Perceived Usefulness (0.751) And A Moderate Positive Correlation With Adoption Costs (0.652). Adoption Costs Exhibited Strong Positive Correlations With Both Ict Illiteracy (0.983) And Technological Infrastructure (0.995). Perceived Usefulness Showed A Moderate Positive Correlation With Ict Illiteracy (0.459) And Strong Positive Correlations With Both Technological Infrastructure (0.978) And Adoption Costs (0.959).

MFIs and Financial Inclusion: The Role of Business Models

The role of Microfinance institutions (MFIs) in driving financial inclusion is contested. We argue that the ability of MFIs to consistently contribute to financial inclusion depends on their business model and its resilience to structural changes. We find that MFIs with an embedded business model (i.e., deep engagement with the local community) perform better in the aftermath of structural policy interventions as compared to MFIs with a transactional model. Using a difference in differences analysis on a database of MFIs that operated in India during the currency demonetization, we find support for our hypotheses. Our findings indicate that while transactional MFIs do better in a stable environment, embedded MFIs hold the advantage in a turbulent environment. Our results underscore the role of business model fit with the environment in driving financial inclusion. We also alert practitioners to the tradeoffs involved in being embedded in the local context (or lack thereof).

Resource Allocation and Performance of Microfinance Institutions in Machakos County, Kenya

This research study sought to determine the impact of resource allocation on the performance of MFIs in Machakos County. The study adopted a descriptive research design. The target population for the study included 63 staff members from the 21 registered MFIs in the county. The study utilized a purposive sampling technique in an effort to identify the most suited respondents for the study. A structured questionnaire was utilized as the data collection tool. The questionnaire was divided into two parts containing the demographic data relating to the respondent's background as part one and the second part covering resource allocation. The questionnaire was structured with a 5-point Likert scale. Descriptive and Inferential statistics were used in the analysis of the data. The linear regression analysis method was used to assess the associations between resource allocation and performance. The study established that resource allocation positively influenced the performance of MFIs in Machakos County. The study concluded that the manner in which resources are allocated significantly affects the performance of microfinance institutions in Machakos County. The study recommends that policymakers and microfinance institution (MFI) leaders should prioritize developing clear guidelines and frameworks for efficient resource allocation

Microfinance in Nepal: An Overview

This paper aims to explore the current challenges and opportunities of the microfinance sector in Nepal. The secondary data and descriptive research with a critical approach are adopted to explain the study. The data were mainly collected from Nepal Rastra Bank's (NRB) annual Reports, and other available literature. The result shows that the center numbers (numbers of microfinance user group) change ratio was reduced from 17.11% to 1.30%, the total group numbers were 13% to 2.88%, the borrower 7.51% to (-9.66%), staff progress 9.75% to (-3.48%), loan outstanding 41.18% to (-5.06), profit 150.53% to (-7238), active loan 40.26 to (-7.94), and saving 22.87 to 3.91 between 2020/2021 to 2022/2023. Similarly, the Overdue member change ratio increased upto 53.66%, the passive loan from 79.47% to 104.3%, and the NPL increased continuously from 2.56% to 5.52%. So, all microfinance institutions are in a critical situation in Nepal. However, microfinance is an important concept to reduce poverty and unemployment. Further, it enhances easy access to financial institutions in rural where large banking institutions are merely available. However, microfinance in Nepal is facing critical challenges as many fraud cases are emerging. The policy implication is crucial as policymakers should formulate both long-term and short-term policies and implement those policies immediately in microfinance to revive the critical current situation.

Competitive advantage and sustainability in Ghanaian microfinance institutions: the mediating role of strategic capabilities

This study explores the effect of competitive advantage on sustainability within Ghanaian microfinance institutions (MFIs), emphasizing the mediating role of strategic capabilities. We conducted a quantitative analysis using survey data from 500 managers representing 150 MFIs in Ghana, analyzed through structural equation modeling. Our findings indicate that competitive advantages and strategic capabilities have a positive significant influence on MFI sustainability. Additionally, strategic capabilities were found to mediate the relationship between competitive advantage and sustainability within Ghanaian MFIs. This study expands the theoretical framework by incorporating cost differentiation, pricing strategy, focus strategy, market strategy, efficient operations and risk management, innovation in product offerings, target market considerations, and client relationship management. We highlight how MFIs can maintain competitiveness through technology, partnerships, training, career development, and knowledge transfer. This mediated relationship underscores the crucial role of strategic capabilities in achieving sustainable operations. The study provides a conceptual framework for understanding MFI sustainability and offers a roadmap to enhance competitive advantage. By integrating elements from the competitive advantage theory and extending the resource-based view theory, this research contributes to the existing knowledge by clarifying the connections between competitive advantage and sustainability in the context of MFIs. Furthermore, the study addresses the dynamics of competitive advantage, strategic capabilities, and sustainability in a context with limited research. It offers practical implications for policymakers and practitioners, providing insights that can inform targeted interventions to enhance capacities and foster sustainability in the microfinance sector.

Microcredit Pricing Model for Microfinance Institutions under Basel III Banking Regulations

Purpose. The purpose of this research is to propose a tool for designing a microcredit risk pricing strategy for borrowers of microfinance institutions (MFIs). Design/methodology/approach. Considering the specific characteristics of microcredit borrowers, we first estimate and measure microcredit risk through the default probability, applying a parametric technique such as logistic regression and a non-parametric technique based on an artificial neural network, looking for the model with the highest predictive power. Secondly, based on the Basel III internal ratings-based (IRB) approach, we use the credit risk measurement for each borrower to design a pricing model that sets microcredit interest rates according to default risk. Findings. The paper demonstrates that the probability of default for each borrower is more accurately adjusted using the artificial neural network. Furthermore, our results suggest that, given a profitability target for the MFI, the microcredit interest rate for clients with a lower level of credit risk should be lower than a standard, fixed rate to achieve the profitability target. Practical implications. This tool allows us, on the one hand, to measure and assess credit risk and minimize default losses in MFIs and, secondly, to promote their competitiveness by reducing interest rates, capital requirements, and credit losses, favoring the financial self-sustainability of these institutions. Social implications. Our findings have the potential to make microfinance institutions fairer and more equitable in their lending practices by providing microcredit with risk-adjusted pricing. Furthermore, our findings can contribute to the design of government policies aimed at promoting the financial and social inclusion of vulnerable people. Originality. The personal characteristics of microcredit clients, mainly reputation and moral solvency, are crucial to the default behavior of microfinance borrowers. These factors should have an impact on the pricing of microcredit.