Award-winning research on microfinance

“It was very unexpected to receive this award. I hope this can help microfinance research gain more attention, as the microfinance industry continues to grow”, says Zamore.

The Emerald & EFMD Outstanding Doctoral Research Award is awarded in ten different categories, with Zamore winning in the Finance category. The aim of the award is to recognise and reward exceptional doctoral research, and the publishers evaluate doctoral theses from all over the world. The award consists of a certificate and €1,000 in prize money, as well as a winner’s logo.
The dean of the School of Business and Law at UiA, Kristin Wallevik, congratulated Zamore on his achievement.

“This is fantastic news, both for Stephen Zamore and our business school. I would also like to thank Roy Mersland and Leif Atle Beisland for their work as doctoral supervisors for Zamore”, says Wallevik.

Sustainability in microfinance

Zamore’s doctoral thesis concentrates on different aspects of sustainability in microfinance institutions. Some strategies from the conventional banking market have made their way to the microfinance market, such as geographic diversification. In banking this is considered smart, as it helps the bank reduce risk. But can the same be said about geographic diversification in microfinance institutions? Zamore wanted to explore this subject at a deeper level.

“We found that the reverse was true. A microfinance institution with multiple locations has higher risk because it cannot monitor its customers properly. This illustrates how conventional banking and microfinance are different, and that applying a theory from one field to another can have opposite effects”, says Stephen Zamore. 

He went further, and for the second article of his thesis he researched if revenue diversification contributes to the sustainability of microfinance institutions. He found that it enhances their financial performance, which in turn can enable them to help more people.

What about non-financial help?

Helping people to get included in the financial system is of course the goal microfinance institutions, but many of them also offer non-financial services to their customers. This can be services such as reading lessons, healthcare and business training. This is the subject of Zamore’s third article.

“We found that offering such services neither reduces nor increases the microfinance institutions’ financial performance. But we also found that it can increase the customer’s ability to pay back the loan. This is a method that microfinance institutions can use to ensure their own investment, particularly in places that lack education”, says Zamore.

The topic of risk often comes up when discussing microfinance, and Zamore wanted to explore this further. The fourth and final article of his dissertation is called ‘Excessive focus on risk? Non-performing loans and efficiency of microfinance institutions’.

“The data shows that loan defaults are more common in conventional banking than in microfinance. But people still think that the risk for loan defaults are higher because of the clients that receive the loans. They often live far away in rural areas and are involved with agriculture. This is a way of living that is dependent on good weather, which you cannot guarantee”, says Zamore.

Low trust equals high cost

He found that many microfinance institutions increase their operating costs to ensure that their clients do not default on their loans. A lot of money and effort is invested to ensure a loan is paid back, and they might spend more money on monitoring clients than the amount the clients were loaned in the first place.

“We conclude that microfinance institutions need to find the balance here. Building trust is crucial, as it decreases risk of non-repayment of loans. At the same time, building trust is an expense for the microfinance institution, but will be worth it in the long run”, says Zamore.