Theme 2: Microbanks: Ownership, Performance and Social Trade-offs – a Global Analysis

Microfinance, understood as the supply of banking services to micro-enterprises and poor households, has become a major development tool and is increasingly also mentioned as a business opportunity. Today tens of thousands of Micro Finance Organizations (MFOs) serve hundreds of millions of poor. However, still only a fraction of the potential market, particularly in rural areas, is being served. Most MFOs are customer-owned cooperatives (COOPs) or Non Profit Organizations (NPOs). However, an increasing number are organized as Share-Holder Firms (SHFs).

There has been a call in the industry for NPOs to transform into SHFs, implicit; a SHF can produce more social benefits than a NPO. In this article we test this implication. The question we seek to answer is; do MFOs organized as SHFs produce more social benefits than MFOs organized as NPOs? Utilising a unique data set, collected from third-party rating agencies, we explore these issues. To frame the discussion we make use of Schreiner’s (2002) framework where he proposes six aspects (worth, cost, depth, breadth, length and scope) to be analysed when discussing outreach of microfinance services.

This paper contributes descriptive statistics and analysis to the scant management literature on microfinance. It also contributes to the literature on the effectiveness of various ownership forms (Hansmann, 1996). In an industry which is still in its infancy and where overall policies as well as legal frameworks are in the melting pot, we consider increased knowledge on these performance issues to be of high importance.

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