Recent work has emphasized the role of context in shaping the diversification strategies of social enterprises (SEs), but our understanding remains superficial. We identify two types of context-driven diversification strategies—market development diversification (MDD) and market functioning diversification (MFD)—depending on the type of voids being addressed. We then empirically test how these diversification strategies impact the performance of SEs on the twin dimensions of financial growth and social impact. Using a mixed-method approach of qualitative interviews and a longitudinal database of Indian (...) microfinance firms (MFIs), we find that while MFD positively impacts financial growth, MDD has a positive effect on social impact. Furthermore, we find that the strategic fit (or lack of it) between the SE’s legal form and the type of diversification enhances (undermines) financial growth. However, the strategic fit between the legal form and diversification choice does not amplify social impact. The study contributes to product diversification literature, which has paid limited attention to the role of context. (shrink)

Although microfinance organizations are generally considered as inherently ethical, recent events have challenged the legitimacy of the sector. High interest rates and the excessive profitability of some market leaders have raised the question of how to define a fair profit level for social enterprise. In this article, we construct a fair profit framework based on four dimensions: profitability, social mission, pricing, and surplus distribution. We then apply this framework using an empirical sample of 496 microfinance institutions. Results indicate that satisfying (...) all four criteria is a difficult, although not impossible, task. According to our framework, 24 MFIs emerge as true double bottom line organizations. These MFIs are characterized by higher outreach to women, lower portfolio risk, and higher productivity in high-density environments such as South Asia. We argue that excessive profits can be better understood relative to pricing, the outreach of the MFI, and organizational commitment to clients in the form of reduced interest rates. (shrink)

Crowdfunded microfinance provides financial resources to impoverished entrepreneurs across the globe based on online appeals describing the entrepreneur’s values and venture potential and is considered a key player in the ethical finance movement. Despite knowledge that the content of the appeals impacts funding success, little is known regarding the role of religious expression, which is common and consequential in socially-oriented contexts. We leverage role congruity theory to address a theoretical tension concerning the effects of religious expression on crowdfunded microfinance funding (...) outcomes. Religious expression is associated with perceptions of trustworthiness, rule-following, and ethicality—qualities that would suggest an entrepreneur would likely avoid opportunist behavior and repay the loan. However, appeals to a higher power may be incongruent with the role of an entrepreneur to the extent that such expression communicates a lack of proactiveness and self-reliance. We use a two-study design to help resolve this tension. Our field study incorporating 253,130 loans from Kiva reveals that religious expression negatively influences funding, particularly for women. Our experiment using 1,795 individual loan assessments shows that the negative influence of religious expression is attenuated when individual lenders exhibit higher levels of religiosity. Post hoc analysis suggests campaigns can mitigate the negative impact of religious expression by being careful to also include aspects highlighting an entrepreneurial orientation. Overall, our work extends prior research suggesting that language tied to ethical or virtuous behaviors is generally not rewarded by lenders as using such language may make the applicant appear inconsistent with role of a stereotypical entrepreneur. (shrink)