Aid Volatility and Social Performance in Microfinance

Bert D'Espallier, Marek Hudon and Ariane Szafarz

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: Uncertainty makes objectives harder to reach. This article examines whether uncertainty in subsidies leads to mission drift in microfinance institutions (MFIs). Using a worldwide sample of 1,151 MFIs active in 104 countries, we find that interest rates increase with aid volatility while average loan size (ALS) is inversely related to aid volatility. These results suggest that MFIs consider ALS as a signaling device for commitment to their social mission, but use interest rates as an adjustment variable to cope with uncertainty. The policy prescription to donor agencies wishing to curtail the rise in interest rates is to deliver subsidies predictably and transparently.

Keywords: average loan size; interest rate; microfinance; mission drift; subsidies (search for similar items in EconPapers)
Date: 2017
Note: SCOPUS: ar.j
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Citations: View citations in EconPapers (14)

Published in: Nonprofit and voluntary sector quarterly (2017) v.46 n° 1,p.116-140

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Working Paper: Aid Volatility and Social Performance in Microfinance (2016)
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