Abstract
Given recent criticisms, orienting the practices of microfinance institutions towards the achievement of their social missions is critical. Going beyond the dichotomous “government-or-market” view, we investigate a fundamental but barely studied actor: professional microfinance associations (MFAs). Despite their central position and the roles that they aim to endorse in the field, MFAs face organizational and governance obstacles limiting their impact, including free riding among member organizations. Our study explores the root causes of free riding within microfinance associations. Thanks to a three-month stay at the Tanzanian MFA, TAMFI, we carried out an immersive fieldwork, which enabled us to collect diverse types of qualitative data, in an inductive perspective: observations during multiple events related to TAMFI’s activities and initiatives, multiple semi-directed interviews with key, local, stakeholders, and reviews of specific documents and reports available at the MFA. Discovering the organizational issues faced by the MFA, we used Elinor Ostrom’s institutional design principles for governing collective action as theoretical lenses, which helped explain some of the mechanisms preventing the MFA to play its desired roles. Among root causes of free riding, we identified trade-offs related to membership heterogeneity, inappropriate distribution of inputs and outputs among member organizations, the lack of monitoring and sanctioning capacity of the associations, and a weak integration into regulatory processes, especially. With a theoretical contribution, we also suggest interdependencies among these institutional issues, which should be considered when governing microfinance associations.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Savings and credit cooperatives.
From recent contacts with the field, it appeared that the 2020 covid crisis slowed the enforcement of regulations and the deployment of the system for registering MFIs. The grace period was thus extended.
TAMFI collected uncomprehensive information on Tanzanian MFIs. This relates to participating MFIs only.
Village and community banks.
As of early 2022.
References
ADA – Appui au Développement Autonome (2010) Practice and innovation in microfinance. N°2
Adams A, Tewari DD (2021) Client protection and microfinance regulation: lessons from Africa. Savings Dev 43:1–20
Afonso JS, Morvant-Roux S, Guérin I (2017) Doing good by doing well? Microfinance, self-regulation and borrowers’ over-indebtedness in the Dominican Republic. J Int Dev 29(7):919–935. https://doi.org/10.1002/jid.3244
Ahrne G, Brunsson N (2005) Organizations and meta-organizations. Scand J Manag 21(4):429–424. https://doi.org/10.1016/j.scaman.2005.09.005
Albareda L, Sison AJ (2020) Commons organizing: embedding common good and institutions for collective action. Insights from ethics and economics. J Bus Ethics 166(4):727–743. https://doi.org/10.1007/s10551-020-04580-8
Auerbach C, Silverstein L (2003) Qualitative data: an introduction to coding and analysis. University, New York
Beck T (2020) Finance, institutions and development. In: Baland J-M, Bourguignon F, Platteau J-P, Verdier (eds) The handbook of institutions and economic development. T., Princeton University Press, Princeton, pp 218–251
BOT – Bank of Tanzania (2005) Tanzania microfinance institutions directory
Bowen F (2019) Marking their own homework: the pragmatic and moral legitimacy of industry self-regulation. J Bus Ethics 156(1):257–272. https://doi.org/10.1007/s10551-017-3635-y
Brickell K, Picchioni F, Natarajan N, Guermond V, Parsons L, Zanello G, Bateman M (2020) Compounding crises of social reproduction: Microfinance, over-indebtedness and the COVID-19 pandemic. World Dev 136:105087. https://doi.org/10.1016/j.worlddev.2020.105087
Brouwers D (2015) Effective codes of conduct: a guide for microfinance associations. SEEP Network report
Brüntrup M (2003) Les associations des institutions de microfinance: Le Cas De L’association professionnelle des institutions de la microfinance du Mali. GTZ report
Caballero-Montes T (2023) Integrating market conditions into regulatory decisions on microfinance interest rates: does competition matter? Ann Finance 19(2):201–232. https://doi.org/10.1007/s10436-022-00417
Caballero-Montes T, Godfroid C, Labie M (2021) Are interest rate caps a relevant tool to cool down overheating microfinance markets? Strategic Change 30(4):319–330. https://doi.org/10.1002/jsc.2426
Chen G, Rasmussen S (2005) Emerging issues for national microfinance associations. ShoreBank Advisory Services and Pakistan Microfinance Association
Cook T, Isem J (2004) What is a network? The diversity of networks in microfinance today. CGAP Occasional paper, N°26
Dardot P, Laval C (2014) Commun. Essai sur la révolution Au XXie siècle. La Découverte, Paris
De Gobbi M (2003) The role of a professional association in mutual microfinance: The case of Madagascar. International Labour Organization Working Paper, N° 37
Demsetz H (1967) Toward a theory of property rights. Am Econ Rev 57(2):347–359. https://doi.org/10.1057/9780230523210_9
Dezso D (2015) Microfinance associations: roles and new leadership opportunities. SEEP Network report
Di Maggio PJ, Powel WW (1991) The New Institutionalism in organizational analysis. University of Chicago Press
Elkington J (2006) Governance for sustainability. Corp Governance: Int Rev 14(6):522–529
Fournier V (2013) Commoning: on the social organisation of the commons. M@n@gement 16(4):433–453. https://doi.org/10.3917/mana.164.0433
Friedman A, Phillips M (2004) Balancing strategy and accountability: a model for the governance of professional associations. Nonprofit Manage Leadersh 15(2):187–204. https://doi.org/10.1002/nml.61
Ghate P (2007) Consumer protection in Indian microfinance: lessons from Andra Pradesh and the Microfinance Bill. Economic Political Wkly 42(13):1176–1184
Glaser B (1978) Theoretical sensitivity. Sociology, Mill Valley
Grafton QR (2000) Governance of the commons: a role for the state. Land Econ 76(4):504–517. https://doi.org/10.2307/3146949
Green NW (2020) Regulating over-indebtedness: local state power in Cambodia’s microfinance market. Dev Change 51(6):1429–1453. https://doi.org/10.1111/dech.12620
Gross R, Brüntrup M (2003) Microfinance associations (MFA): their role in developing the Microfinance Sector. GTZ report
Guérin I, Labie M, Morvant-Roux S (2018) Inadequate growth, over-indebtedness, and crises in microcredit: what have we learned? Enterp Dev Microfinance 29(2):118–132. https://doi.org/10.3362/1755-1986.17-00013
Gugerty MK (2008) The effectiveness of NGO self-regulation: theory and evidence from Africa. Public Administration and Development. Int J Manage Res Pract 28(2):105–118. https://doi.org/10.1002/pad.490
Guillemette F, Luckerhoff J (2009) L’induction en méthodologie de la théorisation enracinée (MTE). Recherches Qualitatives 28(2):3–20
Guillemette F, Luckerhoff J (2012) Méthodologie De La théorisation enracinée: fondements, procédures et usages. Presses de l’Université du Québec: Québec
Gulati R, Puranam P, Tushman M (2012) Meta-organization design: rethinking design in interorganizational and community contexts. Strateg Manag J 33(6):571–586. https://doi.org/10.1002/smj.1975
Gunningham N, Rees J (1997) Industry self-regulation: an institutional perspective. Law Policy 19(4):363–414. https://doi.org/10.1111/1467-9930.t01-1-00033
Gupta N, Mirchandani A (2020) Corporate governance and performance of microfinance institutions: recent global evidences. J Manage Governance 24:307–326. https://doi.org/10.1007/s10997-018-9446-4
Hardin G (1968) The tragedy of the commons: the population problem has no technical solution; it requires a fundamental extension in morality. Science 162(3859):1243–1248. https://doi.org/10.1126/science.162.3859.1243
Haufler V (2001) A public role for the private sector: industry self-regulation in a global economy. The Carnegie Endowment for International Peace, Washington
Héritier A, Eckert S (2009) Self-regulation by associations: collective action problems in European environmental regulation. Bus Politics 11(1):1–22. https://doi.org/10.2202/1469-3569.1250
Hudak K (2011) Building microfinance associations: goals, implementation and policy implications. Nonprofit Policy Forum 2(1):1–24. https://doi.org/10.2202/2154-3348.1020
Hummel J, Berends H, Tuertscher P (2017) What do we have in common? Collective action among heterogeneous actors in a meta-organization. EGOS Conference, https://www.egos.org/jart/prj3/egos/releases/de/upload/Uploads/MBA-2017_st-24_Hummel_et-al.pdf (accessed on 13th February 2022)
Jamali D, Safieddine AM, Rabbath M (2008) Corporate governance and corporate social responsibility synergies and interrelationships. Corp Governance: Int Rev 16(5):443–459. https://doi.org/10.1111/j.1467-8683.2008.00702.x
Jones P (2004) All for one and one for all’: transactions cost and collective action. Polit Stud 52(3):450–468. https://doi.org/10.1111/j.1467-9248.2004.00490.x
Kendall N (1999) Good corporate governance, ‘Accountants’ Digest, vol 40. The ICA in England and Wales, UK
Kilbane SC, Beck JH (1990) Professional associations and the free rider problem: the case of optometry. Public Choice 65(2):181–187
King AA, Lenox MJ (2000) Industry self-regulation without sanctions: the chemical industry’s responsible Care Program. Acad Manag J 43(4):698–716. https://doi.org/10.5465/1556362
Knoke D (1988) Incentives in collective action organizations. Am Sociol Rev 53(3):311–329. https://doi.org/10.2307/2095641
Lapenu C, Konini Z, Razakaharivelo C (2009) Évaluation De La Performance Sociale: les enjeux d’une Finance Responsable. Revue Tiers Monde 197(1):37–54. https://doi.org/10.3917/rtm.197.0037
Lapoutte A (2021) Résilience D’une méta-organisation: Le Cas D’un Commun De L’alimentation. Ann Public Cooper Econ 92(1):79–100. https://doi.org/10.1111/apce.12288
Lejeune C (2019) Manuel d’analyse qualitative. Analyser sans compter ni classer (2nd ed.). De Boeck, Louvain-la-Neuve
Lenox LJ (2006) The role of private decentralized institutions in sustaining industry self-regulation. Organ Sci 17(6):677–690. https://doi.org/10.1287/orsc.1060.0211
Lenox MJ, Nash J (2003) Industry self-regulation and adverse selection: a comparison across four trade association programs. Bus Strategy Environ 12:343–356. https://doi.org/10.1002/bse.380
Lovejoy TE (2006) Protected areas: a prism for a changing world. Trends Ecol Evol 21(6):329–333. https://doi.org/10.1016/j.tree.2006.04.005
MFP – Ministry of Finance and Planning (2017) National Microfinance Policy
Milana C, Ashta A (2020) Microfinance and financial inclusion: challenges and opportunities. Strategic Change 29(3):257–266. https://doi.org/10.1002/jsc.2339
Mirondo R (2016) Microfinance Institutions Have Trust in New Law. The Citizine. https://www.thecitizen.co.tz/tanzania/magazines/microfinance-institutions-have-trust-in-new-law-2570672 (accessed on 13th February 2022)
Mori N, Mersland R (2014) Boards in microfinance institutions: how do stakeholders matter? J Manage Governance 18:235–313. https://doi.org/10.1007/s10997-011-9191-4
Olson M (1965) The logic of collective action: public goods and the theory of groups. Harvard University Press, Cambridge
Ostrom E (1990) Governing the commons: the evolution of institutions for collective action. Cambridge University Press, Cambridge
Ostrom E (2005) Understanding institutional diversity. Princeton University Press, Princeton
Ostrom E (2008) Design principles of robust property–rights institutions: What have we learned Proceedings of the 2008 Land Policy Conference, Lincoln Institute, pp. 23–52, https://www.lincolninst.edu/sites/default/files/pubfiles/2076_1399_LP2008-ch02-Design-Principles-of-Robust-Property-Rights-Institutions_0.pdf (accessed on 13th February 2022)
Ostrom E (2010) Beyond markets and states: polycentric governance of complex economic systems. Am Econ Rev 100(3):641–672
Périlleux A, Nyssens M (2017) Understanding cooperative finance as a new common. Ann Public Cooper Econ 88(2):155–177. https://doi.org/10.1111/apce.12160
Posner RA (1977) Economic analysis of Law. Wolters Kluwer
Raymond L (2003) Private rights in public resources: equity and property allocation in market-based environmental policy. Resources for the Future, Washington
Rubambey G (2005) Policy, regulatory and supervisory environment for microfinance in Tanzania: essays on Regulation and Supervision. Bank of Tanzania
Sengupta U, Dezso D (2013) Keeping an edge: what will it take in the current microfinance context? SEEP Network report
Shadlen K (2002) Orphaned by democracy: small industry in contemporary Mexico. Comp Politics 35(1):43–62. https://doi.org/10.2307/4146927
Singh SK, Gaur SS (2020) Corporate growth, sustainability, and business ethics in twenty first century. J Manage Governance 24:303–305
Strauss AL, Corbin J (1998) Basics of qualitative research, 2nd edn. SAGE, New York
Sumila V (2014) Microfinance unguided. The Citizen. https://www.thecitizen.co.tz/News/Business/Microfinance--unguided-/1840434-2238610-116y2u3/index.html (accessed on 13th February 2022)
TAMFI – Tanzania Association of Microfinance Institutions (2017) Data collection project. Report on Tanzania Microfinance Institutions
Tenn S, McInerny P, McAllister P (2006) Building strong networks: an institutional strengthening guide for microfinance networks. SEEP Network
Acknowledgements
The authors are grateful to the Belgian Fund for Scientific Research (FNRS) which provided a PhD scholarship that allowed this research to be carried out. The authors also warmly thank all the participants that agreed to be interviewed for this research, as well as the Tanzania Association of Microfinance Institutions (TAMFI) for having allowed this case study.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Competing interests
The authors have no competing interest to declare.
Additional information
Publisher’s Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Caballero-Montes, T., Godfroid, C. Governing professional microfinance associations: the Tanzanian case through the prism of institutional design. Rev Manag Sci (2024). https://doi.org/10.1007/s11846-024-00767-9
Received:
Accepted:
Published:
DOI: https://doi.org/10.1007/s11846-024-00767-9