Agency theory plays an important role in explaining the behaviour of managers of microfinance institutions (MFIs). These managers face the same problem of simultaneously satisfying conflicting goals as the managers of for-profit companies. In the case of MFIs, a fundamental conflict occurs as management attempts to balance the organization’s social mission against the organization’s need for financial viability. Our paper investigates this issue. We first develop the goal conflict issue as an agency issue. We then develop quantitative measures of financial stress, wealth of borrowers, and the number of loans in the MFI’s loan portfolio. We use OLS regression to measure the relationship between these variables. The resulting regression equation is highly significant, and the variables in the equation all possess the sign predicted by agency theory.

Adjei, J., Arun, T. and Hossain, F. (2009) ‘Asset building and poverty reduction in Ghana: the case of microfinance’, Savings and Development 33(3): 265–91.

Bussau, D. (2005) Survival Strategies in the TMED Jungle, Manila, Philippines: Transformational Microenterprise Development Training.

Consultative Group to Assist the Poor (CGAP) (2004) CGAP Annual Report 2004 [online] <https://www.cgap.org/about/key-documents/cgap-annual-report-2004> [accessed 7 February 2020].

Counts, A. (2008) ‘Reimagining microfinance’, Stanford Social Innovation Review 6(3): 45–53.

Cull, R., Demirguc-Kunt, A. and Morduch, J. (2009) ‘Microfinance meets the market’, Journal of Economic Perspectives 23(1): 167–92 <https://doi.org/10.1257/jep.23.1.167>.

Hermes, N. and Lensink, R. (2011) ‘Microfinance: its impact, outreach, and sustainability’, World Development 39(6): 875–81 <https://doi.org/10.1016/j.worlddev.2009.10.021>.

Jensen, M. and Meckling, W. (1976) ‘Theory of the firm: managerial behavior, agency costs and ownership structure’, Journal of Financial Economics 3(4): 305–60.

Kar, A. (2013) ‘Mission drift in microfinance: are the concerns really worrying? Recent cross-country results’, International Review of Applied Economics 27(1): 44–60.

Lebovics, M., Hermes, N. and Hudon, M. (2016) ‘Are financial and social efficiency mutually exclusive? A case study of Vietnamese microfinance institutions’, Annals of Public and Cooperative Economics 87(1): 55–77 <https://doi.org/10.1111/apce.12085>.

Morduch, J. (1999) ‘The microfinance promise’, The Journal of Economic Literature 37(4): 1569–614 <https:/doi.org/10.1257/jel.37.4.1569>.

Navajas, S., Schreiner, M., Meyer, R.L., Gonzalez-Vega, C. and Rodriguez-Meza, J. (2000) ‘Microcredit and the poorest of the poor: theory and evidence from Bolivia’, World Development 28(2): 333–46 <https://doi.org/10.1016/S0305-750X(99)00121-7>.

Nyamsogoro, G.D. (2010) Financial Sustainability of Rural Microfinance Institutions (MFIs) in Tanzania, PhD thesis, University of Greenwich.

Rhyne, E. and Otero, M. (2006) Microfinance through the Next Decade: Visioning the Who, What, Where, When and How, Boston, MA: ACCION International.

Rosenberg, R. (2009) Measuring Results of Microfinance Institutions Minimum Indicators that Donors and Investors Should Track, Washington, DC: World Bank.

Schreiner, M. (2001) ‘Seven aspects of loan size’, Journal of Microfinance/ESR Review 3(2): 27–47.

Spencer, A.M. (2009) ‘Mission drift: what is it, potential impacts, and recovery methods’, Seeking Grant Money Today, 6 September.

Tehulu, T.A. (2013) ‘Determinants of financial sustainability of microfinance institutions in East Africa’, European Journal of Business and Management 5(17): 152–8.

Tucker, M. and Miles, G. (2004) ‘Financial performance of microfinance institutions: comparison to performance of regional commercial banks by geographic regions’, Journal of Microfinance/ESR Review 6(1): 41–54.

World Bank (2019) Data Catalog: MIX market [online] <https://datacatalog.worldbank.org/dataset/mix-market> [accessed 7 February 2020].

World Bank Group (2015) Global Monitoring Report 2014/2015: Ending Poverty and Sharing Prosperity – Overview [online], Washington, DC: World Bank <http://documents.worldbank.org/curated/en/447251468336852219/Global-monitoring-report-2014-2015-ending-poverty-and-sharing-prosperity-overview> [accessed 7 February 2020].

World Bank Group (2016) ‘While poverty in Africa has declined, number of poor has increased’ [online], Washington, DC: World Bank <https://www.worldbank.org/en/region/afr/publication/poverty-rising-africa-poverty-report> [accessed 7 February 2020].

Adjei, J., Arun, T. and Hossain, F. (2009) ‘Asset building and poverty reduction in Ghana: the case of microfinance’, Savings and Development 33(3): 265–91.

Bussau, D. (2005) Survival Strategies in the TMED Jungle, Manila, Philippines: Transformational Microenterprise Development Training.

Consultative Group to Assist the Poor (CGAP) (2004) CGAP Annual Report 2004 [online] <https://www.cgap.org/about/key-documents/cgap-annual-report-2004> [accessed 7 February 2020].

Counts, A. (2008) ‘Reimagining microfinance’, Stanford Social Innovation Review 6(3): 45–53.

Cull, R., Demirguc-Kunt, A. and Morduch, J. (2009) ‘Microfinance meets the market’, Journal of Economic Perspectives 23(1): 167–92 <https://doi.org/10.1257/jep.23.1.167>.

Hermes, N. and Lensink, R. (2011) ‘Microfinance: its impact, outreach, and sustainability’, World Development 39(6): 875–81 <https://doi.org/10.1016/j.worlddev.2009.10.021>.

Jensen, M. and Meckling, W. (1976) ‘Theory of the firm: managerial behavior, agency costs and ownership structure’, Journal of Financial Economics 3(4): 305–60.

Kar, A. (2013) ‘Mission drift in microfinance: are the concerns really worrying? Recent cross-country results’, International Review of Applied Economics 27(1): 44–60.

Lebovics, M., Hermes, N. and Hudon, M. (2016) ‘Are financial and social efficiency mutually exclusive? A case study of Vietnamese microfinance institutions’, Annals of Public and Cooperative Economics 87(1): 55–77 <https://doi.org/10.1111/apce.12085>.

Morduch, J. (1999) ‘The microfinance promise’, The Journal of Economic Literature 37(4): 1569–614 <https:/doi.org/10.1257/jel.37.4.1569>.

Navajas, S., Schreiner, M., Meyer, R.L., Gonzalez-Vega, C. and Rodriguez-Meza, J. (2000) ‘Microcredit and the poorest of the poor: theory and evidence from Bolivia’, World Development 28(2): 333–46 <https://doi.org/10.1016/S0305-750X(99)00121-7>.

Nyamsogoro, G.D. (2010) Financial Sustainability of Rural Microfinance Institutions (MFIs) in Tanzania, PhD thesis, University of Greenwich.

Rhyne, E. and Otero, M. (2006) Microfinance through the Next Decade: Visioning the Who, What, Where, When and How, Boston, MA: ACCION International.

Rosenberg, R. (2009) Measuring Results of Microfinance Institutions Minimum Indicators that Donors and Investors Should Track, Washington, DC: World Bank.

Schreiner, M. (2001) ‘Seven aspects of loan size’, Journal of Microfinance/ESR Review 3(2): 27–47.

Spencer, A.M. (2009) ‘Mission drift: what is it, potential impacts, and recovery methods’, Seeking Grant Money Today, 6 September.

Tehulu, T.A. (2013) ‘Determinants of financial sustainability of microfinance institutions in East Africa’, European Journal of Business and Management 5(17): 152–8.

Tucker, M. and Miles, G. (2004) ‘Financial performance of microfinance institutions: comparison to performance of regional commercial banks by geographic regions’, Journal of Microfinance/ESR Review 6(1): 41–54.

World Bank (2019) Data Catalog: MIX market [online] <https://datacatalog.worldbank.org/dataset/mix-market> [accessed 7 February 2020].

World Bank Group (2015) Global Monitoring Report 2014/2015: Ending Poverty and Sharing Prosperity – Overview [online], Washington, DC: World Bank <http://documents.worldbank.org/curated/en/447251468336852219/Global-monitoring-report-2014-2015-ending-poverty-and-sharing-prosperity-overview> [accessed 7 February 2020].

World Bank Group (2016) ‘While poverty in Africa has declined, number of poor has increased’ [online], Washington, DC: World Bank <https://www.worldbank.org/en/region/afr/publication/poverty-rising-africa-poverty-report> [accessed 7 February 2020].