How does microfinance prosper? An analysis of environmental, social, and governance context

Abstract

The spotlight of this study is to examine whether environmental, social, and governance performance affects the financial performance of microfinance institutions (MFIs). The topic has been of much interest to researchers and policymakers due to increased awareness among stakeholders on the adverse social and environmental impacts of business actions. Using a dataset covering 5 years for 62 MFIs across 34 countries, we find that environmental and governance performance has no impact on the financial performance of MFIs. As for the social-financial performance nexus, our results reveal a positive relationship using the depth of outreach as proxy of social performance. However, when women empowerment is used as a proxy for social performance, evidence suggest presence of negative relationship. The study contributes to the literature by providing new evidence on the relationship between environmental, social, and governance and financial performance from microfinance industry. Our results are robust to a variety of econometric specifications and have significant policy implications for donors, investors, MFIs, and regulators.

Keywords

Environmental performance, ESG performance, Financial performance, Governance performance, Microfinance, Social performance

Citation

Tanin, Tauhidul Islam and Mobin, Mohammad Ashraful and Ng, Adam Boon Ka and Dewandaru, Ginanjar and Salim, Kinan and Nkoba, Malik Abdulrahman and Abdul Razak, Ahmad Lutfi. (2019). How does microfinance prosper? An analysis of environmental, social, and governance context. Sustainable Development, 27 (6), pp. 1001-1022.

Publisher

John Wiley & Sons, Ltd and ERP Environment

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