The Impact of External Governance Quality on the Economic and Social Success of Microfinance Institutions

Using data on 558 MFIs in 80 countries for the period from 2002 to 2007, this paper provides empirical evidence that the quality of a country's external governance system positively affects the local microbanks' economic success in terms of ROA and operational self-sufficiency. In contrast, increasing external governance quality has a negative impact on the microbanks' social success measured by depth of outreach, although we find no empirical evidence for the existence of a trade-off between profitability and the microbanks' ability to serve the poor. Empirical results from our panel regressions even hold when performing various robustness checks and sensitivity analyses