Globalization and affordability of microfinance

• Main Authors: SUN, Sunny Li, LIANG, Hao
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2021
• Subjects: Economic globalization; Financial inclusion; Institutional logics; Microfinance; Non-profit organizations; Social globalization; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/6615; https://ink.library.smu.edu.sg/context/lkcsb_research/article/7614/viewcontent/Globalization_Affordability_Microfinance_av.pdf
• Institution: Singapore Management University

We study how globalization can differentially affect financial inclusion through the lens of microfinance. Based on an institutional logics perspective, we argue that MFIs embody both social logic and market logic with regard to provision of affordable microfinance loans. Speicially, social logic is amplified by greater social globalization and the stronger presence of nonprofit organizations (NPOs) in the microfinance industry. In contrast, economic globalization catalyzes MFIs' market logic, leading to weaker or greater affordability of microfinance, depending on the relative strength of the profit-maximizing motive and real competition. We test these predictions by focusing on MFI interest-rate setting and using longitudinal data from 2030 MFI observations across 50 countries from 2002 to 2012. We find that country-level social globalization measure is negatively associated with the average MFI loan interest rates and that country-level economic globalization measure has an inverse U-shaped relationship with the average MFI loan interest rates. These results support our hypotheses and suggest a more nuanced view on how globalization affects affordability of microfinance.