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How Culture Influences Social and Financial Performance of Microbanks: Evidence from an Empirical Study

Despite micro-finance's deep embeddedness in cultural contexts, research on the influence of culture on the performance of micro-finance institutions (MFIs) is rather sparse. As micro-finance industry increasingly diversifies across geographical borders, it is important to understand how national culture where MFIs are located affects their social and financial performance. This study investigates the role of national cultural dimensions on MFI social outreach to women and financial sustainability. Hofstede’s four dimensions of national culture are used: power distance, uncertainty avoidance, individualism and masculinity. Two econometric models are tested based on data of 1,186 micro-finance firms from 42 countries over a period of 12 years. The results offer empirical evidence that national culture exerts significant influence on MFI performance. The findings are of relevance to policymakers and practitioners and help provide a better understanding of the appropriate micro-lending policies in a particular cultural context.