Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization and Microfinance Institutions

Understanding how globalization influences MFI’s capability to overcome institutional voids

This paper examines the heterogeneous effects of globalization on interest rate setting by MFIs around the world. It considers MFIs as a mechanism to overcome the institutional void of credit for small entrepreneurs in developing and emerging economies. For the study, the paper uses a large global panel of MFIs from 119 countries, and it finds that social globalization that embraces egalitarian institutions on an average reduces MFIs’ interest rates. On the other hand, economic globalization that embraces neoliberal institutions on average increases MFIs’ interest rates. The paper also finds that the proportions of female borrowers and of poor borrowers negatively moderate the relationship between economic globalization and MFI interest rate. It covers the following sections in detail:

  • Microfinance in developing and emerging countries;
  • Hypothesis development with a focus on the heterogeneous effects of globalization and institutional voids;
  • Data and methodology used for the study with a focus on sampling methodology and multi-level regression analysis;
  • Discussion on the findings of the research and policy implications;
  • Contributions of the paper in understanding the multifaceted effects of globalization and the role of MFIs and social enterprises.

About this Publication

By Liang, H., Marquis, C. & Sun, S.L.