Microfinance Performance and Informal Institutions:A Cross-country Analysis

This paper investigates the relationship between the extent to which informalinstitutions are developed at the country-level and the financial and socialperformance of MFIs, using data from institutions active in 100 countries. Basedon the theoretical literature discussing the economic role of informal institutionssuch as trust, beliefs, norms and values we hypothesize that microfinance ismore successful, both in terms of their financial and social aims, in countries withstronger informal institutions. We test this hypothesis using various direct andindirect measures of informal institutions and link them to measures of financialand social performance of MFIs. Our empirical results are generally supportive toour hypothesis