article · Nonprofit Management and Leadership
Microfinance was established to serve poor and financially excluded populations, but commercial interest in high repayment rates has driven the growth of for-profit providers across developing countries. An empirical analysis of 1189 microfinance institutions across 105 countries between 2010 and 2018 assessed the effects of profit orientation on governance, outreach, and financial sustainability. The findings show that nonprofit institutions maintain larger boards and greater gender diversity than for-profit peers. Nonprofits also achieve greater depth and broader coverage in their outreach, alongside superior financial health. However, these distinctions are clear primarily in middle-income countries; in low-income countries, differences in outreach and sustainability are mixed or statistically insignificant. Institutions transitioning from nonprofit to commercial models must therefore carefully reconfigure their governance, outreach targets, and financial models.
As commercial investors increasingly enter microfinance, understanding how profit motives alter social missions is essential. These findings show that commercialisation can narrow outreach and reduce board diversity. This evidence assists development funders, regulators, and microfinance managers in anticipating the operational trade-offs that occur when institutions shift toward for-profit corporate structures.
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ABSTRACT Microfinance was initially established to serve the poor and financially excluded. However, the allure of high repayment rates and low non‐performing loans has attracted for‐profit investors to the microfinance landscape, seeking not only to extend loan services to the poor but also to generate profits. Consequently, a growing number of for‐profit Microfinance Institutions (MFIs) have emerged in developing countries. This study examines the implications of profit orientation on the governance structure, outreach goal, and financial sustainability of MFIs. To accomplish this, we collected data from 1189 unique MFIs in 105 countries spanning 2010 to 2018 and applied both non‐parametric (e.g., t ‐test and Kruskal Wallis) and parametric tests (e.g., regressions analysis). Our findings revealed significant differences in governance structure between for‐profit and nonprofit MFIs, with the latter exhibiting larger board sizes and greater gender diversity. We also observed variations in outreach, with nonprofit MFIs demonstrating broader coverage and greater depth. Finally, empirical evidence highlighted differences in financial sustainability, as nonprofit MFIs tend to have higher financial health than their for‐profit counterparts. However, the effect of nonprofit status was mostly consistent with the baseline results for middle‐income countries but mixed and insignificant for low‐income countries (except for governance indicators). These findings have policy implications, underscoring the need for MFIs transitioning from nonprofit to for‐profit status to adapt their governance structure, realign their outreach mission, and refocus on financial sustainability accordingly.
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DOI: 10.1002/nml.21666
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