This study seeks to identify the factors that are associated with the digital transformation of microfinance institutions (MFIs).
The study employs probit models to investigate the likelihood of integrating digital solutions by MFIs and Heckman models for robustness checks.
The findings reveal that the adoption of these tools is consistent with the social performance of MFIs. Furthermore, the profitability of the institutions and their home country development are associated with a larger application of digital support solutions.
Since the survey data collected is not longitudinal and does not cover many MFIs, it may encounter the absence of comprehensive results. Moreover, the study is limited to supply-side incentive factors, thus lacks of investigations under supply-demand interaction schemes. Therefore, future studies are encouraged to fill up these knowledge gaps.
The results imply that the adoption of digital solutions does not necessarily harm the social performance of MFIs. In addition, the findings may imply that financial sustainability can serve as being a preliminary condition but must not lead to the mission drift of MFIs. Findings of the study have implications for policymakers, donors and investors who wish to accelerate the digital transformation within the microfinance industry and to significantly boost financial inclusion. A focus on more social-oriented MFIs can be an appropriate solution. Furthermore, the pathway to digital financial inclusion through microfinance can be made more efficient if improved and supportive facilities as well as systems for digital technology are available.
This paper is the first one which highlights the relationship between the MFI's social performance and the application of digital solutions by MFIs. Furthermore, we discuss this link while considering cost aspects.
