Introducing a Theoretical Model for the Performance of Microfinance Firms

Because borrowers sometimes take out additional loans in order to repay their earlier microfinance loans, microfinance loan repayment rates may be artificially inflated. The authors therefore propose a temporal socio-cultural model based on Hofstede's (1980) cultural dimensions, the diffusion of innovations, and the social network theory, that can be used to think about the performance of microfinance firms in general. The authors specifically apply this model to longitudinally assess the performance of SKS Microfinance, a microfinance firm in India. This approach adds a new dimension to understanding how to steer the industry away from some of the problems it has recently faced.