MFIs and Financial Inclusion: The Role of Business Models

Document Type

Article

Publication Title

Journal of Development Studies

Abstract

The role of Microfinance institutions (MFIs) in driving financial inclusion is contested. We argue that the ability of MFIs to consistently contribute to financial inclusion depends on their business model and its resilience to structural changes. We find that MFIs with an embedded business model (i.e., deep engagement with the local community) perform better in the aftermath of structural policy interventions as compared to MFIs with a transactional model. Using a difference in differences analysis on a database of MFIs that operated in India during the currency demonetization, we find support for our hypotheses. Our findings indicate that while transactional MFIs do better in a stable environment, embedded MFIs hold the advantage in a turbulent environment. Our results underscore the role of business model fit with the environment in driving financial inclusion. We also alert practitioners to the tradeoffs involved in being embedded in the local context (or lack thereof). © 2024 Informa UK Limited, trading as Taylor & Francis Group.

Publication Date

19-9-2024

Publisher

Routledge

Volume

Vol.61

Issue

Iss.1

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