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What is a Fair Level of Profit for Social Enterprise? Insights from Microfinance

Journal of Business Ethics, ISSN: 1573-0697, Vol: 162, Issue: 3, Page: 627-644
2020
  • 41
    Citations
  • 0
    Usage
  • 185
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    41
    • Citation Indexes
      41
  • Captures
    185

Article Description

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.

Bibliographic Details

Marek Hudon; Patrick Reichert; Marc Labie

Springer Science and Business Media LLC

Business, Management and Accounting; Arts and Humanities; Economics, Econometrics and Finance; Social Sciences

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