nep-mfd New Economics Papers
on Microfinance
Issue of 2017‒10‒22
two papers chosen by
Olivier Dagnelie
Université de Caen

  1. What is a fair profit for social enterprise? Insights from microfinance By Marek Hudon; Marc Labie; Patrick Reichert
  2. Microenterprises in Developing Countries: Is there Growth Potential? By Helke Seitz

  1. By: Marek Hudon; Marc Labie; Patrick Reichert
    Abstract: Although microfinance organizations have typically been considered as inherently ethical, recent events have challenged the legitimacy of the sector. High interest rates and the exorbitant profitability of some market leaders have raised the question of what can be considered a fair, or ethical, level of profit for social enterprise. In this article, we construct a fair profit framework for social enterprise based on four dimensions: the level of profitability, the extent to which the organization adheres to its social mission, the pricing and the surplus distribution. We then apply this framework using an empirical sample of 496 microfinance institutions. Results indicate that satisfying all four dimensions is a difficult, although not impossible, task. Based on our framework, 13 MFIs emerge as true double-bottom-line organizations and tend to be relatively young, large MFIs from South Asia. Using our framework, we argue that excessive profits can be better understood relative to pricing, the outreach of the MFI and the organizational commitment to clients in the form of reduced interest rates.
    Keywords: Microfinance; Development Ethics; Exploitation; Institutional Logic
    JEL: F35 G21 G28 L31 M14
    Date: 2017–10–12
    URL: http://d.repec.org/n?u=RePEc:sol:wpaper:2013/258793&r=mfd
  2. By: Helke Seitz
    Abstract: Microenterprises account for a large fraction of employment in developing countries and they are likely to increase in importance in the future. In Sub-Saharan Africa, for example, around 8 million additional jobs need to be created annually in order to cope with the increasing number of new entrants into the labour market (The World Bank, 2013). As microenterprises typically only provide subsistence income to few individuals the question remains whether they have the potential to grow and to contribute to the creation of jobs. Studies suggest that many businesses do indeed have the potential to grow. However, they often lack the necessary funds due to imperfect credit markets, insufficient household savings or behavioral reasons and missing information to exploit their potential. Policy interventions to overcome these issues show some promising results.
    Date: 2017
    URL: http://d.repec.org/n?u=RePEc:diw:diwrup:114en&r=mfd

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