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ABSTRACT
Microfinance institutions (MFIs) play a significant role in the financial industry in developed and developing countries. These institutions are known for their social and economic contributions in many countries. Notwithstanding their social as well as economic importance, information and research on MFIs remained not only limited but rather also attracted fragmented research interest. Despite their pivotal role in the financial industry, the literature indicates minimal theoretical as well as empirical studies on business practices adopted by MFIs. Drawing from the review of the literature and past studies, this paper specifically identifies and reviews five business practices that are considered essential to the performance as well as financial viability of MFIs.
INTRODUCTION
Microfinance institutions (MFIs) were created to fulfill the financial needs of the needy. These financial institutions provide various types of microfinance and financial services that are meant for the poor people. Interestingly, in developing and developed countries, MFIs have become not only an important player in the financial industry but also a major source of financing for people with minimal income as well as those that do not have access to financial facilities provided by commercial banks and other conventional financial institutions.
More importantly, in developing countries such as Bangladesh and Nigeria, the microloans and financial services provided by MFIs are increasingly being recognized as one of the effective means of eradicating poverty in these countries. For instance, it was reported that in Bangladesh, the Grameen Microcredit Bank which was founded in 1983 helped to get rid of begging by allocating funds to provide food and other supplies to beggars, improved education of poor children through education loans, increased the number of homes equipped with electricity and assisted the poor to start their own small businesses (Geleta, 2016; Ene & Inemesit, 2015; Tadele & Rao, 2014; Shukran & Rahaman, 2011; The Star, October 21, 2015; Yunus, 1998 and 2007).
As financial institutions to the poor people, their success depends very much on their business practices and how well they are being managed. With regard to the performance and sustainability of MFIs, some continue to maintain their success while others appear to be less successful. The successful MFIs are able to perform and sustain their financial viability because of their ability to adopt...