New CERMi-CEB working paper by Bert D’Espallier and SOCENT professors Marek Hudon and Ariane Szafarz available for download
“Aid Volatility and Social Performance in Microfinance”, by Bert D’Espallier and SOCENT professors Marek Hudon and Ariane Szafarz, is now available for download. This article is forthcoming in Nonprofit and Voluntary Sector Quarterly.
Abstract: Uncertainty makes objectives harder to reach. This paper examines whether uncertainty in subsidies leads to mission drift in microfinance institutions (MFIs). Using a worldwide sample of 1,151 MFIs active in 104 countries, the authors find that interest rates increase with aid volatility while average loan size is inversely related to aid volatility. These results suggest that MFIs consider average loan size as a signaling device for commitment to their social mission, but use interest rates as an adjustment variable to cope with uncertainty. The policy prescription to donor agencies wishing to curtail the rise in interest rates is to deliver subsidies predictably and transparently.