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Abstract
The simultaneous achievement of social and financial objectives assigned to microfinance institutions is a challenge. Therefore, these institutions are facing a trade-off that can lead to mission drift. With the help of a purposive sample of 40 Indian microfinance institutions' data for eight years, from 2005 to 2012, the present study has been attempted to verify the existence of trade-off between social and financial performance of microfinance institutions. To test such existence of trade-off, the study estimated a model while referring to D'Arcimoles and Trebucq (2002)'s study dealing with the link between corporate financial performance and social performance in French context. Our results identified several significant and nonsignificant results that were sometimes contradictory. The number of cases contradicting the existence of trade-off was more than the number of cases supporting such existence of trade-off. We can therefore conclude that microfinance institutions can simultaneously achieve their social objectives and financial goals.
Key words: Microfmance institutions, Social performance, Financial performance, Trade-off, Depth of outreach, Panel data.
Introduction
The boom in the microfmance industry, the hope it raises as a catalyst for sustainable economic development and the extent of resources invested in this sector, deserve our attention. Microfmance is "the provision of financial services to low-income and very poor self-employed people" (Otero, 1999). These financial services include savings, credit, payment facilities, remittance, insurance and also non-financial services like training, counseling etc. (Ledgerwood, 1999; Wright, 1999; Christen and Rosenberg, 2000). Asian Development Bank (ADB) defines microfmance as the provision of a broad range of financial services such as deposits, loans, payment services, money transfers, and insurance to poor and low-income households and their micro-enterprises (ADB, 2000; Mwenda and Muuka, 2004). The financial services provided by the microfmance providers are meant to help the poor in undertaking economic activities, mitigating vulnerabilities to income shocks, smoothening consumption, increasing savings and supporting self-empowerment.
The main objective of microfmance is to improve the standard of living of the poor and bring them out of poverty. Yadagiri and Gangadhar (2008) stated that micro-finance has become a significant poverty alleviation programme as it provides the necessary capital to the poor for starting their own ventures. To carry out this objective, a microfmance institution needs to perform well. Indian microfmance industry is...