Transformation of Microfinance Institutions

What is it about?

This article seeks to understand the implications of a strategic decision when a Microfinance Institution change its legal status from an NGO to a fully fledge commercial Bank.

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Why is it important?

We show that when an MFI change its legal status, the transformation significantly improves the profitability and the efficiency; and the quality of the portfolio. However, transformation alters significantly the social objectives of the institution by decreasing its breadth and depth of social outreach. Finally, we show that the average loan size widely used to proxy mission drift is not a robust indicator since clients grow over time and always favour bigger loans.