How can a critical analysis of entrepreneurial intention inform an appreciation of ethics in social enterprise business models? In answering this question, we consider the ethical commitments that inform entrepreneurial action and the hybrid organisations that emerge out of these commitments and actions. Ethical theory can be a useful way to reorient the field of social enterprise so that it is more critical of bureaucratic and market-driven enterprises connected to neoliberal doctrine. Social enterprise hybrid business models are therefore reframed as (...) outcomes of both ethical and entrepreneurial intentions. We challenge the dominant conceptualisation of social enterprise as a hybrid blend of mission and market by reframing hybridity in terms of the moral choice of economic system and social value orientation. We deconstruct the political foundations of charitable trading activities, co-operative and mutual enterprises and socially responsible businesses by examining the rationalities and ethical commitments that underpin them. Whilst conceptual modelling of social enterprise is not new, this paper contributes to knowledge by developing a theory of social enterprise ethics based on the moral/political choices that are made by entrepreneurs when choosing between systems of economic exchange and social value orientation, then expressing it through a legal form. (shrink)

ABSTRACT:Microfinance is often assumed to be an ethically progressive industry, but in recent years it has been the target of much ethical criticism. Microfinance institutions have been accused of using exploitative lending techniques and charging usurious interest rates; and critics even question the ability of microfinance to alleviate poverty. This article reviews recent research on the microfinance sector that addresses these ethical issues. We show how this research is relevant to a number of theoretical issues, such as how to define (...) poverty, how to understand exploitation, and how to balance financial and social goals in commercial organizations. We conclude by identifying a critical agenda for future research. (shrink)

This paper applies insights from behavioral economics and nudge theory to foster sustainable and responsible investment. SRI provides an opportunity to express and promote ethical values via choice of financial instruments. While policy-makers have tried to encourage greater participation in SRI, the majority of retail investors retain a conventional approach to investment. I develop a conceptual framework to improve the effectiveness of SRI policy-making. The first part of the framework comprises a transmission mechanism which emphasizes the role of SRI as (...) a driver for sustainable development. The second part is a model of the individual decision for or against SRI. The framework suggests that low SRI demand is a case of behavioral market failure, and that nudging is a suitable tool for dismantling behavioral barriers to SRI. A specific example of smart choice architecture is used to illustrate the framework’s potential in the design of an SRI nudge. Assuming the nudge stands up to the rigors of empirical testing, it may well provide a feasible alternative for policy-makers. (shrink)

In recent years, the microfinance industry has received a substantial amount of cross-border funding from both public and private sources. This funding reflects the increasing interest in microfinance as part of a more general trend towards socially responsible investments. In order to be able to secure sustained interest from these investors, it is important that the microfinance industry can show evidence of its contribution to reducing poverty at the bottom of the pyramid. For this, it is crucial to understand under (...) what conditions microfinance institutions are able to reduce poverty. This paper contributes to this discussion by investigating the relationship between the extent to which social capital formation is facilitated within different societies and the financial and social performance of MFIs. This focus on social capital formation is important, because in many cases MFIs use group loans with joint liability to incentivize asset-poor borrowers to substitute the lack of physical collateral by their social capital. Hence, the success of a large part of the loan relationship between MFIs and their borrowers depends on the social capital those borrowers can bring into the contract. We carry out a cross-country analysis on a dataset containing 100 countries and identify different social dimensions as proxies for how easy social capital can be developed in different countries. We hypothesize that microfinance is more successful, both in terms of their financial and social aims, in societies that are more conducive to the development of social capital. Our empirical results support our hypothesis. (shrink)

Ethical banking, microfinance institutions or certain credit cooperatives, among others, grant socially responsible loans. This paper presents a credit score system for them. The model evaluates social and financial aspects of the borrower. The financial aspects are evaluated under the conventional banking framework, by analysing accounting statements and financial projections. The social aspects try to quantify the loan impact on the achievement of Millennium Development Goals such as employment, education, environment, health or community impact. The social credit score model should (...) incorporate the lender’s know-how and should also be coherent with its mission. This is done using Multi-Criteria Decision Making. The paper illustrates a real case: a loan application by a social entrepreneur presented to a socially responsible lender. The decision support system not only produces a score, but also reveals strengths and weaknesses of the application. (shrink)

Recent research suggests that many microfinance institutions increasingly focus on financial performance at the expense of the social component of their dual objectives. Existing studies typically assume that capital providers and managers mainly drive this so-called mission drift. In this study, we investigate whether ‘personal mission drift’ at the credit officer level can further explain the reduced emphasis on poorer clients among microfinance institutions. We present both qualitative and quantitative evidence that more experienced credit officers tend to serve fewer vulnerable (...) clients. Specifically, we show that all else being equal, credit officer experience is negatively correlated with the provision of small loans, loans to young clients, and loans to clients with disabilities. Our qualitative analysis suggests that perceived client risk and preferences for increased time efficiency mainly drive more experienced credit officers’ relative neglect of more vulnerable clients. This drift appears to be reinforced by the industry’s incentive schemes. Therefore, credit officer incentives and training should be designed to prevent this mission drift, which is observed at the microfinance institution level but is actually initiated at the credit officer level. (shrink)

An accessible analysis of the global expansion of financial markets in poor communities, incorporating the latest thinking and evidence.