Differential Social Performance of Religiously-Affiliated Microfinance Institutions (MFIs) in Base of Pyramid (BoP) Marketsby R. Mitch Casselman, Linda M. Sama, Abraham Stefanidis

J Bus Ethics

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Differential Social Performance of Religiously-Affiliated

Microfinance Institutions (MFIs) in Base of Pyramid (BoP)

Markets

R. Mitch Casselman • Linda M. Sama •

Abraham Stefanidis

Received: 12 January 2014 / Accepted: 5 September 2014  Springer Science+Business Media Dordrecht 2014

Abstract As the debate over the value of microfinance institutions (MFIs) intensifies, it remains apparent that microfinance may, at the very least, be considered as one tool in the arsenal of the war against poverty in base of pyramid (BoP) markets. Given the variety of actors in the microfinance arena, stakeholders have placed a relatively new emphasis on performance reporting for MFIs, allowing comparisons and identifications of performance gaps.

One result of this scrutiny is an increased importance placed on MFIs’ social performance, with an eye to understanding measures of MFIs’ intent, process, and results in the social realm—in addition to their financial sustainability. While a number of factors may explain differences in social performance, in this paper we take a close look at a particular factor that may have a positive relationship with social performance—that of an MFI’s religious affiliation or religiosity. Using archival data, we derived three sets of randomly paired samples, pairing religious MFIs with non-religious ones, and compared social performance indicators derived from the literature across the samples. We sought to understand whether religiously-affiliated MFIs would, in fact, demonstrate stronger social performance intent, wider social performance reach via service delivery processes, and better social performance outcomes in BoP markets. Statistical analysis provided preliminary evidence that religiouslyaffiliated MFIs display stronger social performance, suggesting new avenues for future research.

Keywords Faith-based organizations  Microfinance institutions  Poverty alleviation  Social performance

Introduction

Microfinance has been touted as an effective tool in the arsenal of the war against poverty by many witnesses to its success in many developing regions around the world, including Africa (Imhanlahimi and Idolor 2010; Mosley and Rock 2004; Nkpoyen and Bassey 2012), Southeast

Asia (Jha and Bawa 2007; Quinones and Seibel 2000), the

Middle East (Abdul Rahim 2010), and the Americas (Bhatt and Tang 2001; Mosley 2001). Drawn by the industry’s profit potential and the increasing willingness of financial markets to fund loans with repayment rates in excess of 90 %, commercial private and public sector banks have joined traditional microfinance institutions (MFIs) such as

NGOs and other not-for-profit entities in offering loans and other financial services to the urban and rural poor in developing countries. Growth in the industry has been significant (Mixmarket.org 2013a) with the sector expanding ‘‘at historic rates’’ (Chen et al. 2010, p. 1), reaching more than 190 million families, up from only a few million clients in the 1980s (Reed 2011, p. 7).

The growth of the microfinance industry has not come without criticism (Karnani 2011). While the early leaders in microfinance had a clear mission to help those in poverty, the motivations and impact of later entrants have come into question. For example, in an ethnographic study of Bangladeshi women, Karim (2011) found that MFIs who

R. M. Casselman  L. M. Sama (&)  A. Stefanidis

Department of Management, Peter J. Tobin College of Business,

St. John’s University, 8000 Utopia Parkway, Queens, NY 11439,

USA e-mail: samal@stjohns.edu

R. M. Casselman e-mail: casselmr@stjohns.edu

A. Stefanidis e-mail: stefania@stjohns.edu 123

J Bus Ethics

DOI 10.1007/s10551-014-2360-z work with the rural poor wield considerable coercive power, shaming women who do not repay their debts, while at the same time noting that women may have limited ability to improve their own situation because of familial and cultural barriers. Similarly, Hahn (2012) notes that microfinance has positive direct and indirect consumption-based effects on the dignity of the poor, but at the same time may indirectly impact social freedom and selfesteem through group lending models. These and other problems within the industry have led to greater regulation and an increased requirement for MFIs to be transparent and demonstrate their contribution to society. As a result, some of the major MFI rating systems and performance reporting organizations (such as mixmarket.org) have expanded their measurement systems from a focus primarily on financial performance and stability to include various social performance measures.

Building on this industry focus on the social performance of MFIs, as well as recent literature in the broader field of development economics suggesting that the ethical orientation of faith-based organizations may help them to more effectively contribute to development goals (Tomalin 2012), the focus of this paper turns to the differential behavior of religiously-affiliated MFIs. One promising avenue for embarking on this exploration is to examine the extent to which MFIs may reflect a social orientation and emphasis on ethics in their stated values and mission; and, hand-in-hand with this line of inquiry, the degree to which

MFIs may have a religious affiliation that would sustain a tradition of upholding ethical and social values as primary in the achievement of organizational goals. This relationship between religious affiliation of MFIs and social performance is particularly relevant given that previous research uncovers a positive relationship between religiosity and ethical orientation in business, more generally (see, for example, Conroy and Emerson 2004; Kennedy and Lawton 1998; McNichols and Zimmerer 1985).

In this research, we explore the degree to which the claims, reflecting a relationship between religiosity and positive business conduct in general, apply to MFIs in particular, and with special attention to the social performance of MFIs. This builds on prior work by Mersland et al. (2013), which focused primarily on examining the financial performance of Christian MFIs. By taking a holistic empirical approach, it also extends prior work on the religious affiliation of MFIs that may have focused on particular countries (Mask and Borger 2008; Siebel 2008), or religions (Kaleem and Ahmed 2010). Ambiguity around the correlation between religious affiliation and performance outcomes renders this research of greater consequence in understanding the effectiveness of different types of MFIs operating in different contexts. For example, one study conducted in Nigeria found that variables such as religion, ethnic background and political affiliation acted to ‘‘hinder the outreach performance of microfinance institutions’’, explaining that these factors are often drivers of discrimination in countries in sub-Saharan Africa (Gumel 2011, p. 128). Moreover, it is expected that the size of the