What is a Fair Level of Profit for Social Enterprise? Insights from Microfinance
Although microfinance organizations are generally considered as inherently ethical, recent events have challenged the legitimacy of the sector. High interest rates and the excessive profitability of some market leaders have raised the question of how to define a fair profit level for social enterprise. In this article, we construct a fair profit framework based on four dimensions: profitability, social mission, pricing, and surplus distribution. We then apply this framework using an empirical sample of 496 microfinance institutions (MFIs). Results indicate that satisfying all four criteria is a difficult, although not impossible, task. According to our framework, 24 MFIs emerge as true double bottom line organizations. These MFIs are characterized by higher outreach to women, lower portfolio risk, and higher productivity in high-density environments such as South Asia. We argue that excessive profits can be better understood relative to pricing, the outreach of the MFI, and organizational commitment to clients in the form of reduced interest rates.
KeywordsMicrofinance Fairness Exploitation Profit Social enterprise
JEL ClassificationF35 G21 G28 L31 M14
Compliance with Ethical Standards
Conflict of interest
All authors declare that they have no conflict of interest.
This article does not contain any studies with human participants or animals performed by any of the authors.
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