Does lending to women lower sustainability of microfinance institutions? Moderating role of national cultures

Abstract

Purpose: This study aims to investigate whether lending to women decreases sustainability of microfinance institutions (MFIs) and how regional characteristics where MFIs are located moderate this effect. Design/methodology/approach: Financial and operating data of MFIs and national cultures are available from the MIX Market database and the Hofstede’s publications. These data are analyzed by using multiple regression models with the financial self-sustainability, proportion of women borrowers in the MFI’s lending portfolio, and dimensions of national culture as dependent, explanatory and moderating variables. Findings: Lending to women tends to reduce sustainability of MFIs. This negative effect is more pronounced in countries ranking higher on power distance and individualism, but the effect is less serious in countries ranking higher on masculinity and uncertainty avoidance. Originality/value: Many studies demonstrate that MFIs improve their repayment rates by targeting women borrowers. The increase in repayment rates, however, may not always improve their sustainability. Further, as microfinance industry increasingly diversifies geographically, regional characteristics where MFIs are located play a vital contingent role in their sustainability.