2.1.1.3 Financial and social performance: synergies or
trade-off?
According to many authors and practitioners, MFIs always face
a situation of mission drift (Dewez & Neisa, 2009; Conning & Morduch,
2011; Ben Soltane, 2012) since reaching the double bottom line in microfinance
is quite a paradox. Nevertheless, the research findings about that specific
aspect are quite various. Whereas some authors have shown that there is a real
trade-off between achieving financial and social performance in microfinance
(Hermes, Lensink & Meesters, 2011), others such as Zerai & Rani (2012)
and Ben Soltane (2012) have found that there is neutral relationship between
financial and social performance; rather, they have deducted that it is
possible for a MFI to achieve both financial and social performance.
But for Gonzalez (2010), the situation of trade-off or synergy
depends essentially on the selected indicators or variables.
Our study will contribute to the improvement of this issue
which is currently riveting the industry.
2.1.2 Other dimensions of viability analysis
Another current mainstream in the microfinance industry is
that MFIs should be sustainable while providing their services. For long time,
institutionalisation was seen as the main factor of sustainability and was
focused only on financial and institutional viability (GTZ, 2002). However
there is a growing acknowledgment that financial performance only cannot help
MFIs to reach their missions (Pistelli, Simanowitz & Thiel, 2011). Thus,
social viability and governance appear as two other dimensions that should be
included for a better apprehension of the concept of sustainability (GTZ,
2002).
2.1.2.1 Social viability
For GTZ (2002), social viability can be seen as the completion
of a win-win trade-off on interest between different stakeholders having a
direct or indirect interest or link with the MFI. It is therefore a key concept
which, once well integrated may impact on the good functioning of MFIs.
GTZ (2002) identified two types of social viability:
- The internal social viability which focuses on the trade-off
relationship between actors directly linked to the MFI;
- The external social viability which includes the
mainstreaming of the MFI in local environment.
In general, practitioners and scholars focus mainly on the
internal social viability though the external one is quite important.
2.1.2.2 Governance
Progressively used in the microfinance industry, the notion of
governance is most often related to the functional relations between the
management board and loan officers who are daily involved in all the management
process of a given microfinance institution (GTZ, 2002; Lapenu & Pierret,
2006). Basically it refers to the processes whereby equity holders and others
financing agencies ascertain themselves that the use of their funds by the
institution is in line with the objectives they are dedicated to (Hartarska,
2005; Labie & Périlleux, 2008). More widely, governance may also be
concerned with many others issues in MFIs such as strategic objectives (clients
targeting, product design, organisational structure), resources allocation and
management, adaptation to the changes in the sector, crisis prevention and
management (GTZ, 2002; Lapenu & Pierret, 2006).
The good governance is a key element for MFIs sustainability
as the quality of governance affects the vision and strategy of MFIs regardless
their status (AFD, 2008). Moreover, for Mersland (2009), corporate governance
affects the way institutions perform. Particularly in cooperatives structures,
corporate governance tends to be more complex. Labie & Périlleux
(2008), through a relevant literature, emphasised the moral hazard, conflicts
between owner and manager, conflicts between members and elected board of
directors, conflicts between employees and volunteers as four main conflicts
encountered in credit unions' governance.
Therefore, the governance analysis appears as one key
component for assessing the viability of a MFI.
Mersland & Storm (2009) highlighted three dimensions to
look at whilst analysing the governance in a MFI: the «vertical
dimension» focused on the owners and the staff, the «horizontal
dimension» between the MFI and its clients and the «external
governance dimension».
On the other hand, based on IMF (2004) and Briceno-Garmendia
& Foster (2007), Wele (2009) proposed six variables with nine indicators to
assess the quality of governance in microfinance institutions. These variables
are: Respect of regulation, Managerial autonomy, Quality of the information
system, Power of board of Directors. He combined the analysis of theses
indicator with the analysis of the board structure and efficiency as proposed
by Mersland & Storm (2009).
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