Female Participation and Financial Performance of Microfinance Institutions: Evidence from Transition Economies

Motivation: Although female clients are the main target of most Microfinance Institutions (MFIs), male–female workforce ratio in microfinance operations is not proportionate. There is a consensus that a greater female presence in the workforce at all hierarchical levels could enhance the financial performance of MFIs thanks to women’s tougher commitments and better managing capacity. Purpose: There is scarce research investigating which hierarchical levels of female workforce contribute to MFIs’ financial performance. This study aims at filling this gap by jointly analysing the effect of female participation at all hierarchical levels of MFIs, which is relatively rare in the existing literature, especially in microfinance. Methods and approach: We use data from 172 MFIs in Eastern Europe and Central Asian countries (EECA) for the period 1996–2014. The data were then analysed by ordinary least squares, fixed, and random effects models, along with several diagnostic tests. Findings: We find that female board members and female clients contribute positively to the financial performance of MFIs. The literature presents these outcomes as being due to women’s’ better organizational and monitoring techniques, and more responsible use of loans, respectively. However, our analysis shows that female managers and loan officers may impair financial performance to some extent, possibly because they face cultural limitations and safety obstacles, resulting in their being less persuasive and effective than men, especially in the process of collecting arrears payments. Policy implications: Our study suggests that MFIs in the EECA context may improve their financial sustainability by reconsidering their organizational choices, such as operational recruitment, placing women at the top of the decision-making process. At the lower levels of the hierarchy, particularly loan officers, it would be advisable to support them in the interaction with male customers, so that they can adopt more effective techniques in the loan collection phases. MFIs can also scale up their loan activities to more women since their representation in the client base is relatively low in the EECA region.