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Xiaolan Fu, Owusu Essegbey and Godfred K. Frempong

Managerial capability is a crucial pillar in enhancing innovation and facilitating industrial development. Ghana is not only a country that bears the distinctive features of the African context, but it also models the characteristics of an emerging economy where innovation is central for further progress. In that regard, the question of how knowledge and innovation can be further stimulated to enhance growth sustainably is of keen interest to stakeholders, policy makers, development actors, innovation scholars and others alike. Finding answers to this question has become quite urgent against the background of the imperatives of sustainable development. The focus on managerial knowledge transfer to build managerial capability is a major effort to understand and address some of the crucial challenges facing emerging economies with the appropriate answers. Sustainable development is a global agenda. Invariably, nations ought to strategise for the attainment of the SDGs within their socio-economic contexts and in line with their national aspirations. For a country such as Ghana, the SDGs of poverty elimination, food and nutrition security, good health and well-being are at the core of national efforts. Ghana’s poverty incidence of 24.2 per cent of the total population may be one of the examples of relatively low poverty incidence on the continent. However, it is still not acceptable that almost a quarter of the human population in a nation should be living in poverty, especially when the aim of SDG 1 is to ‘end poverty in all its forms everywhere’. The current industrialisation drive with the flagship programme of One District One Factory (1D1F) illustrates the efforts at creating conditions for economic advancement. In the process, MNEs have the potential of being major players.

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Valentina Hartarska and Denis Nadolnyak

This chapter’s objective is to introduce the reader to the main aspects of productivity and efficiency analysis of microfinance institutions (MFIs) and to identify the agenda for future research. We start with a few basic definitions. Productivity and efficiency analyses fall within the broader field of performance evaluation of MFIs. Productivity analysis and the related widely used productivity measures are concerned with the rate of output for a certain amount of input. More formal modeling of the production process in microfinance defines efficient production as the result of profit maximization or of the dual cost minimization subject to technological and resource constraints. Thus, such analysis aims to identify the maximum output(s) that can be produced from a given set of inputs or the minimum input mix used to produce a given level of output. Efficiency analysis extends productivity analysis by constructing an efficient production or cost frontier for a group of firms or an industry against which individual MFIs can be compared using either data envelopment (DEA) or stochastic frontier (SFA) analysis.1 We start by describing the two main approaches to productivity and efficiency analysis of MFIs, the non-structural and structural approaches.

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Baptiste Venet

In 2012, Demirguc-Kunt and Klapper posited that effective and inclusive financial systems are likely to benefit poor people and other disadvantaged groups because without inclusive financial systems, poor people must rely on their own limited savings to invest in their education or become entrepreneurs – and small enterprises must rely on their limited earnings to pursue promising growth opportunities. This can contribute to persistent income inequality and slower economic growth. (2012, p. 1) Twenty years earlier, McKinnon the “financial liberalization” school, claimed that the development of the financial system is at the heart of the economic development process.

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Roy Mersland, Stephen Zamore, Kwame Ohene Djan and Tigist Woldetsadik Sommeno

Over the past four decades, microfinance has grown from small local initiatives into a global phenomenon practiced in many markets, mostly in low-income economies but also in well-developed markets like the US and the EU. Interestingly, microfinance institutions (MFIs), that is, providers of financial services to end customers, often have several cross-border stakeholders, including shareholders, donors, lenders, and providers of technical assistance and advanced IT systems. Moreover, important “think tanks” like the CGAP provide the industry with global policy guidelines. Thus, microfinance is a very international industry and empirical evidence shows that international stakeholders as well as policymakers influence the performance of MFIs (Mersland et al., 2011; Mersland and Urgeghe, 2013). The purpose of this chapter is therefore to give an overview of the internationalization of the industry and to suggest relevant theories when studying cross-border microfinance partnerships. Moreover, we present initial statistical evidence of how internationalization can influence MFIs’ performance and the type of services they offer. Based on our initial results, we suggest a research agenda for future studies.

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Xiaolan Fu, Owusu Essegbey and Godfred K. Frempong

Multinational enterprises are everywhere engaging in a myriad of economic activities. The perceptions of their impact on the nation’s economy range from negative at one extreme to positive at the other extreme. Granted that the truth is somewhere in between, the crucial issue is the impact of the MNEs on the nation’s economy and how national policies are shaped to enhance that impact. In this regard, there is the need for empirical research that unravels the contextual ramifications, which either constrain or facilitate positive impact on the national economy. This is particularly vital given that the role of MNEs in the economic activities and development of various countries is deepening with globalisation. Such a role can be expected to increase as globalisation continues to be fuelled by the advancement of technology, regionalisation and geopolitics, among others. Indeed, MNEs are increasingly able to pursue their economic interests across geographical and national boundaries. On the one hand, countries ought to welcome this development and eagerly promote the participation of MNEs in their national socio-economic activities, given the potential for impact on economic growth. On the other hand, countries need to ensure that MNEs’ engagement in the host countries remains positive and with the least negative outcomes on growth and development. There are several ways of doing this. For example, appropriate, homegrown policies and regulatory practices which are informed by knowledge of the nature and extent of MNEs’ activities in the host countries are important approaches to enhancing the positive impacts of MNEs. To a large extent, the effectiveness of engaging MNEs in socio- economic development depends on how countries are able to strategise to create the necessary conditions for their activities on the basis of researched evidence and proven knowledge of MNEs’ capacities and potential for impacts in the national contexts of their operations.

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Laurent Weill

Islamic finance can be defined as finance that conforms to Islamic law (Sharia) derived from the Qur’an and other sources. It has considerably expanded over the last two decades, with Islamic financial assets increasing from $150 billion in the mid-90s to $1880 billion at the end of 2015 (Islamic Financial Services, 2016). Islamic finance is particularly prominent in Southeast Asia, South Asia, and in Middle Eastern countries. According to Obaidullah and Khan (2008, p.6) in a report for the Islamic Development Bank, “microfinance and Islamic finance have much in common . . .. Both focus on developmental and social goals. Both advocate financial inclusion . . .. Both involve participation by the poor.” It therefore appears natural that Islamic microfinance has emerged to supply microfinance tools which are Shariacompliant. Our objective in this chapter is to describe and to discuss Islamic microfinance. We aim at explaining how Islamic microfinance works nowadays in the world. To this end, we explain what characterizes Islamic finance and present the differences between Islamic microfinance and conventional microfinance. Literature on Islamic microfinance is still very limited, which limits the current knowledge we have on the effects of Islamic microfinance.

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Marek Hudon, Marc Labie and Ariane Szafarz

For a long time, scholars and practitioners have questioned the link between economic development and the financial sector. Undeniably, there is a deep connection there, but causalities are hard to capture, and are therefore controversial. Arguably, causal links exist in both ways depending on the precise variables considered. Whether the development of the financial sector follows economic development, or the reverse, is a key issue when it comes to drafting policy recommendations for development aid. This book focusses on the segment of the financial sector that affects the situation of the unbanked and marginalized people. By bringing together original and multidisciplinary contributions from world-renowned scholars in the field, it has the ambition of providing the readers with an up-to-date state of the art on key issues of research in microfinance and financial inclusion. In line with the editorial policy of the series, each chapter also opens avenues worth exploring in future academic work. This introductory chapter explains how the issues addressed in this volume emerged from the field. Next, we describe the plan of the monograph and briefly evoke a few promising topics left aside to fulfill space constraints. Contemporary microfinance appeared in the 1970s, when it appeared that injecting capital through development banks was not the universal cure for poverty (Hulme and Mosley, 1996). At the same time, the ideological context was favorable. The 1980s have witnessed a strong political push in favor of deregulating markets, stimulating private enterprises, and favoring as much competition as possible (Weber, 2004). This was fertile ground for the development of microfinance institutions. First, microfinance carried the great hope that subsidies would make it possible to design organizations financing excluded people and turn them into microentrepreneurs. Their private businesses would generate additional incomes, leading to significantly improving their livelihoods. In a nutshell, poverty understood as a lack of income could be solved by microcredit, which allowed the poor to work their own way out of poverty. Second, microfinance was built on a promise that microfinance institutions (MFIs, as they got called) would break even after a few years and provide financial inclusion to more and more people (Morduch, 1999a). The accuracy of this past prediction is still open to discussion. While, undeniably, microfinance has undergone a tremendous development during the last three decades, leading to more financial inclusion than ever, several original assumptions were severely confronted with reality. First, microcredit does not necessarily generate income through entrepreneurial activities since part of it is used for consumer loans. Second, the initial target pool of borrowers, made up of the poorest of the poor, is hard to reach. Last, the objective of smoothing the impact of economic shocks appeared to be more limited than expected.

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Niels Hermes

The term governance refers to how the rights, claims and obligations are divided among the stakeholders of an organization. Governance deals with the rules and regulations shaping ownership, management and its monitoring. The governance of an organization consists of a set of internal as well as external mechanisms that are in place to make sure that the interests of its stakeholders (shareholders, banks, employees, government, and society as a whole) are taken care of by management. Since the corporate scandals of the early 2000s, governance has received a lot of attention, both from academia as well as from policy makers. Governance is also important for microfinance. According to the Centre for the Study of Financial Innovation (CSFI), governance is one of the main concerns microfinance institutions (MFIs) have to deal with, especially in the last couple of years. In particular, the reports stress concerns related to the low quality of management and lack of professionalism, cronyism, and lack of transparency and disclosure.

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Brian Hathaway and Tyler Wry

A vibrant line of research on microfinance has emerged at the intersection of management and organization theory. This research broadly addresses two sets of questions: first, what types of challenges and opportunities emerge from the combination of financial and social goals that microfinance exemplifies? And second, how does the “macro” embeddedness of such “social enterprises” shape and constrain their behavior as they craft responses to these pressures? As one of the most pervasive and controversial forms of social enterprise, microfinance has been eagerly studied and serves as the empirical setting for many of the most influential pieces on social enterprise in the management literature.

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Anastasia Cozarenco and Ariane Szafarz

Microfinance-like activities have existed in developed countries long before Mohammad Yunus coined the term “microcredit” in the 1970s. Several past financial institutions in Western Europe and North America parallel with contemporary microfinance institutions (MFIs). These institutions include the Monti di Pieta, founded in Italy in the 15th century to provide low-interest loans to the poor (Di Castri, 2010), the English lending charities dating back to the 15th century, the Irish loan funds active between 1720 and 1950 (Hollis & Sweetman, 2001), and the Italian Casse Rurali established since 1883 (Hollis & Sweetman, 1998). In the middle of the 19th century, a spectacular cooperative movement was initiated by the English Rochdale Society of Equitable Pioneers. At the same time in Germany, Hermann Schulze-Delitzsch and Friedrich Raiffeisen launched the concept of credit cooperatives (Guinnane, 2011; Perilleux & Nyssens, 2017), which later inspired the development of cooperatives and credit unions in Europe (Italy, Spain, France, and so on) and North America, and beyond. These institutions and their modern successors confirm that microfinance is a worldwide phenomenon, in line with Yunus’s (1999, p.175) statement: “Whenever I am asked if Grameen can work in other countries, I respond emphatically that it can work wherever there is poverty, including wealthy countries.” Despite their specific structures and operations, the historically distant institutions shared notable features with modern MFIs. First, they served the social purpose of filling the gap between pawnshops and traditional banks reluctant to serve the poor (Hollis & Sweetman, 1998). Second, they often required the presence of cosigners, so announcing the implementation of group lending (Guinnane, 2011). Last, like current MFIs, the pioneering institutions aimed at harnessing local information and took advantage of the social ties existing among their clients (Hollis & Sweetman, 2001).