Microfinance Performance and Informal Institutions: A Cross-country Analysis

This paper investigates the relationship between the extent to which informal institutions are developed at the country-level and the financial and social performance of MFIs, using data from institutions active in 100 countries. Based on the theoretical literature discussing the economic role of informal institutions such as trust, beliefs, norms and values, the researchers hypothesize that microfinance is more successful, both in terms of their financial performance and social impact, in countries with stronger informal institutions.

This hypothesis is tested using various direct and indirect measures of informal institutions and linking them to measures of financial and social performance of MFIs. The empirical results are generally supportive to the hypothesis.