Microlending in emerging economies: Building a new line of inquiry from the ground up

Abstract

The world's poor may be the last great frontier in international business. International microlenders are increasingly tapping into this emerging opportunity by extending small business loans to millions of borrowers. However, to date, there is very limited understanding of this domain from an international business perspective. Using qualitative case studies developed in Guatemala and the Dominican Republic we probe the causes and consequences of high performance and business failure for microloan recipients. The analysis of these cases led to the development of six testable propositions focused on the behavior of borrowers whose loans populate the portfolios of international microlenders. Our research aims to lay a foundation in international business for future research on microlending.

Microfinance for poverty alleviation: Do transnational initiatives overlook fundamental questions of competition and intermediation?

“…Loans to micro-entrepreneurs help people accumulate assets, whereas non-productive loans merely help people consume more (Banerjee et al, 2015;Bruton, Ketchen and Ireland, 2013;Usman et al, 2015). Therefore, research typically focuses on micro-entrepreneurs (Bruton, Khavul and Chavez, 2011), and we follow this agenda.…”

Finance and Social Responsibility in the Informal Economy: Institutional Voids, Globalization and Microfinance Institutions

“…For small entrepreneurs, lower costs of borrowing from MFIs gives informal entrepreneurs easier financing, thus makes it easier for their businesses to operate and survive, which further leads to better development of the informal sector and thus more inclusive growth in the society (Bruton, Khavul, & Chavez, 2011, Robinson, 2001. That is, interest rate setting largely manifests MFIs' social responsibility in caring about the welfare of poor borrowers across countries informal economies (Sun & Im, 2015).…”

“…Others have studied the economic consequences of MFIs, such as poverty reduction (Khandker, 2005) and entrepreneurship (Bruton, Khavul, & Chavez, 2011). Recently, some scholars have taken the lender's perspective and investigated how microfinance loans are influenced by MFIs organizational characteristics.…”

“…Although social globalization helps to promote education and financial literacy for both genders, women usually improve less than men (Milgram, 2001;Sun & Im, 2015), and their access to finance is more likely to be suppressed. Extending this logic to the context of borrowing from MFIs, women benefit less from social globalization than men in terms of reduced costs of borrowing (accessing to micro-credit), because women have less personal contact, lower productivity, and so it would have less an effect on their information asymmetry (Bruton et al, 2011;Cull et al, 2007). In other words, men gain more bargaining power from social globalization than women.…”

“…All these give poor borrowers stronger bargaining power in relation to MFIs (Bruton et al, 2011;Yunus, 2007). However, such benefits of social globalization are not likely to be enjoyed equally across different borrowers.…”