The Cost of Ownership in Microfinance Organizations

32 Pages Posted: 14 Mar 2007 Last revised: 21 Dec 2010

Date Written: January 3, 2007

Abstract

This article analyses the cost of ownership in microfinance organizations. We specifically compare the ownership-cost of Shareholders Firms (SHFs), Non Profit Organizations (NPOs) and Cooperatives (COOPs). A paradoxical situation motivates us: most providers of microfinance, both historically and today, are NPOs or COOPs, while several policy papers advocate SHFs. Based on an extension of Hansmann's (1996) economic theory of ownership we propose that cost variables related to market contracting of microfinance services favor NPOs and COOPs, whereas most cost variables related to the practice of ownership favor SHFs. We conclude that in severe imperfect markets, where most microfinance organizations operate, NPOs and COOPs are still needed.

Keywords: Microfinance, ownership, corporate governance, nonprofits, cooperatives, transformation

JEL Classification: G21, G32, O16

Suggested Citation

Mersland, Roy, The Cost of Ownership in Microfinance Organizations (January 3, 2007). World Development, Vol. 37, No. 2, 2009, Available at SSRN: https://ssrn.com/abstract=970500

Roy Mersland (Contact Author)

University of Agder ( email )

Serviceboks 422
N-4604 Kristiansand, VEST AGDER 4604
Norway

HOME PAGE: http://www.uia.no/microfinance