Abstract:
Several studies, articles, and incidents have raised allegations against the relentless
profit seeking nature of microfinance institutions, and shown their limited social
impact. Microfinance is no longer attributed to be the panacea to poverty as it once
was. However, the industry continues to show resilience and grow, in utter defiance
of economic shocks and downturns, and with it grows the body of research on its
performance. As much of the literature nudges the sector to achieve high profitability
while in their pursuit of social impact, co-existence of these goals is not without
conflict and several studies point to ‗trade-offs‘ when double-bottom line growth is
sought. Several studies have shown evidence that these institutions abandon social
goals in pursuit of profits. As a result, stakeholders and customers have been
vociferously demanding interest rate caps, and other regulations to curb profits in the
sector at the expense of the well-being of the poorest of the poor customers that these
institutions serve. This dissertation goes one step further and raises the question of
what are the various legal forms, and profit orientations of MFIs in India and
questions the premise that differences in profit orientations and regulatory statuses
bear any impact at all on social performance in the Indian context. Using a panel of
156 unique MFIs from India over the period of 2014 to 2018 it addresses the effects
that profit orientation, and regulation have on the social performance of MFIs. The
results indicate that for-profits and non-profits are largely similar in terms of social
performance. Further, contrary to hypothesis, it is found that regulatory statuses of
MFIs also bear no significant impact on social outreach indicators.
The results counter the popular rhetoric in favour of more regulations in the
sector; however, it is difficult to generalize these results across the spectrum as
different studies that have considered different measures of social outreach have
found conflicting results. Yet, the implications are important for future research in
the sector, for investors seeking responsible yet strong returns, for policymakers
formulating regulatory governance frameworks and for MFIs in search of a balanced
business model that maximizes social and financial returns.
