This study aims to examine why innovation initiatives in microfinance institutions (MFIs) often remain fragile and uneven despite growing investment, policy attention and digital transformation. It develops an integrative framework centered on governance capacity to explain how hybrid MFIs convert institutional tension into durable innovation or allow it to produce fragmented change.
This study uses an integrative literature review with a preferred reporting items for systematic reviews and meta-analyses-based selection process, synthesizing 128 peer-reviewed articles published between 2010 and 2024 in Association of Business Schools-ranked (3/4/4*) journals. The analysis integrates evidence on organizational competence, innovation and sustainability to explain how innovation becomes institutionally embedded.
The review finds that innovation in MFIs depends on alignment with organizational competence and sustainability practices, rather than on technological adoption alone. Innovation remains fragile when these elements are disconnected but becomes more durable when governance capacity aligns competence, organizational routines and mission over time.
This study introduces governance capacity as the mechanism that explains whether hybrid MFIs transform institutional tension into durable innovation. It shifts the focus from technology adoption to the organizational conditions that make innovation endure.
