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On Ethical Violations in Microfinance Backed Small Businesses: Family and Household Welfare

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Abstract

The microfinance business model focuses largely on lending to the woman in the household, rather than the man. The belief is that women are more trustworthy borrowers than men, and that lending to women may have increased social impact. Yet in several cases, women do not have control over the loan backed business despite being the borrower of record. Such takeover of the business by the man constitutes an ethical violation. We find that high dependency ratios in the family are correlates of such ethical violations. Further, we also find that ethical violations have a significant economic cost, consistent with prior scholarship in the family-business domain. While access to microfinance increases household welfare, this beneficial impact reduces by over 50% in the presence of an ethical violation. Our results suggest that microfinance lenders need to move beyond the traditional role of just being a lender to providing advice on issues like family planning, and money management, and enforcement, thus moving closer to the solidarity economy paradigm of integrating savings and credit into broader canvases of social relationships and social structures.

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Notes

  1. There are roughly 1.92 dependents per family of size 3.48. One more dependent member therefore raises the percentage of dependents by 28.71%.

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Authors and Affiliations

  1. Indian Institute of Management Indore, Rau-Pithampur Road, Indore, 453556, India

    Rahul Nilakantan

  2. Parker College of Business, Georgia Southern University, Statesboro, GA, 30460, USA

    Deepak Iyengar

  3. Indian Institute of Management Ahmedabad, Ahmedabad, 380015, India

    Samar K. Datta

  4. Department of Systems & Technology, Raymond J. Harbert College of Business, Auburn University, Auburn, AL, 36849, USA

    Shashank Rao

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  1. Rahul Nilakantan
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  2. Deepak Iyengar
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  4. Shashank Rao
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Nilakantan, R., Iyengar, D., Datta, S.K. et al. On Ethical Violations in Microfinance Backed Small Businesses: Family and Household Welfare. J Bus Ethics 172, 785–802 (2021). https://doi.org/10.1007/s10551-020-04499-0

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