Practice What You Preach

Does the focus on financial versus social performance affect the efficiency of double bottom line firms? The case of microfinance institutions.

Unlike purely profit oriented firms, double bottom line firms care about both financial and social performance. Some firms prioritize profits, while other give higher importance to social and environmental impact. Depending on their preferences, double-bottom line firms will choose different output mixes, inputs and production methods. Nevertheless some of these choices might be suboptimal and create inefficiencies.

In this ECCE Webinar, researcher Matteo Millone discusses how focusing on financial versus social performance affects the efficiency of microfinance institutions. More efficient institutions will be able to lend more and therefore will have larger financial and social impact. We will show whether microfinance institutions that focus on richer more profitable borrowers are indeed more efficient or whether it is possible to efficiently lend to the poor. Our analysis offers a tool for microfinance investors to screen microfinance institutions and maximize the impact of their investment.