Partnerships In Microfinance Games And Gains-PDF Free Download

Partnerships in Microfinance Games and Gains

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2. Why partnerships are important for microfinance Microfinance often includes microcredit, savings, insurance, money transfers, and other financial services to the poor and low-income people8. From a traditional point of view, microfinance has been considered to be an innovative development tool which contributes to poverty alleviation in the

1 Introduction
Microfinance remains a booming social and ethical business in spite of the recent financial market
meltdown Presently the foreign capital investment in microfinance including both debt and equity
has reached US 13 billion The sector is considered as having a leading impact on social development
Reille Forster and Rozas 2011 The bright prospect and impressive historical performance have
attracted significant public debate and resulted in the mainstreaming of this industry Prahalad
2005 During the past decade microfinance institutions MFIs from the southern countries have
performed actively towards transformation from non profiit to commercial oriented organizations
Meanwhile growing commitment from international commercial capital has ensured adequate funding
for the emerging sector5 Galema Lensink and Spierdijk 2011
The rapid and relatively stable growth rate of the industry has attracted investors with very diverse
motivation and expectation unsurprisingly with both social and financial missions Contrary to being
a universal tool of poverty alleviation microfinance is also increasingly challenged for its
effectiveness The tool is less universal in supporting poverty alleviation and social development
enabling mechanismthan it is often portrayed to be Because of issues concerning over indebtedness
and absence of regulations ethical investors start to question to what extent microfinance can indeed
contribute to the reduction of global poverty and under what conditions
In the international development field game theory is a particularly powerful tool to understand the
interaction of the players In the area of microfinance the word players is translated into
stakeholders Many researchers have highlighted the benefits of a combination of cooperation and
competition Ruigrok and Van Tulder 1995 Brandenburger and Nalebuff 1996 Kosfeld and Von
Siemens 2011 Cooperative and competitive mechanisms will be studied in order to understand how
the stakeholders optimize their individual value or generate the mutually preferred outcomes within a
certain social context In this case the inter organizational linkages partnerships in various shapes
among the stakeholders will be analysed in terms of game theory Furthermore this case will be
different from the mainstream traditional game theory research which focuses on a non cooperative
game and aims at obtaining a competitive advantage
This paper shifts the attention to the cooperative business model as pioneered by microfinance It
discusses the potential benefits and limitations of multi stakeholder partnership for international
society development which includes three spheres state market and civil society Van Tulder and
Van der Zwart 2006
The literature on partnerships primarily addresses the benefits of pooling complementary resources
5 Microfinance sector is still small compared to the mainstream finance while full of potential is just
beginning to make significant developments
and institutional backgrounds Austin 2000 Successful collaboration may lead to significant
economies of scale6 scope7 to produce a higher level of efficiency or even effectiveness in social
development A proper partnership can accelerate the transformation of knowledge and provide an
environment that encourages long term commitment to capital with greater capacity to absorb
investment risk Organizations therefore can encourage innovation and improve performance as they
learn how to shift from an adversarial situation to a partnership mindset or to move from interest
based negotiations towards vision based negotiations Van Tulder 2011
Nevertheless commitment to collaboration incurs both costs and benefits Agarwal Croson and
Mahoney 2010 One of the challenges of cooperation is how to overcome self interest where natural
selection works Free riding is potentially threatening the stability of cooperation Rational partners
will enter into alliances only when it creates value Partners will have to compromise with a lower
level of expectation because of the risks that are reduced through cooperation Therefore close
supervision is crucial to ensure a positive outcome is created for all stakeholders in the partnership
formation Ultimately in a collaborative game the more collaboratively shared values overcome self
interest the more likely the partnership will sustain its success Adobor 2011
The remaining of the paper will look into the formation of various partnerships in the development
field which also can be implemented in the microfinance sector It depends on the type of partner
type of alliance collaboration incentives interdependency and enhancement mechanism It starts with
a systematic literature review of the game theory on multi stakeholder partnership This will
subsequently be applied to a more practitioner s point of view in microfinance The relevant market
condition will be explored including lack of information system over crowded in the tier one
funding lack of sufficient diversity of industry structure and the absence of sufficient industry
regulation Furthermore some thoughts on how to improve international development cooperation will
be concluded in this paper A future research agenda on how to apply partnership in microfinance
could potentially benefit the sector development The topics of network theory ownership theory and
how to move from non cooperative game to cooperative game represent a rich area for further
research to support the social development in the underdeveloped regions
2 Why partnerships are important for microfinance
Microfinance often includes microcredit savings insurance money transfers and other financial
services to the poor and low income people8 From a traditional point of view microfinance has been
considered to be an innovative development tool which contributes to poverty alleviation in the
underdeveloped regions Recent studies have emphasized the influence from the exogenous
6 Economy of scale http www investopedia com terms e economiesofscale asp
7 Economy of scope http www investopedia com terms e economiesofscope asp
8 Microfinance http www microfinancegateway org p site m template rc 1 26 9183
challenges such as the financial crisis of 2008 to its endogenous problems The microfinance industry
is facing the challenge on how to improve its social impacts and meanwhile sustain its financial
returns Conning and Morduch 2011 state that the sector is experiencing a meltdown the
microfinance sector is blamed for an aggressive loan collection practices over lending to indebted
customers and interest rates manipulation This paper is trying to review the microfinance business
from a new angle and introduces a new mechanism to improve local development
It is a common mindset to look at business as waging a war in this view competition is considered as
a standard model to win a game In order to win the opponent has to lose However suggestion to
create a mutual benefit such as a win win situation are very beneficial for the business interaction
First because the approach is relatively unexplored there is a greater potential for finding new
opportunities Second because others are not being forced to give up ground they may offer less
resistance to win win moves making them easier to implement Third because win win moves don t
force other players to retaliate the new game is more sustainable And finally imitation of a win win
move is beneficial not harmful Brandenburger and Nalebuff 1995
Changing the mindset of organizations into a more proactive attitude requires a method for
development and implementation such as stakeholder dialogues Van Tulder and Van der Zwart
2006 The new cooperative attitude suggests that starting an open dialogue shifts relations from
confrontation and competition towards consolations and cooperation Trust me and show me are
replaced by the call for involve me join me or engage me in the social interaction Van Tulder
Particularly since the UN World Summit on sustainable development which took place in
Johannesburg in 2002 inter sectoral partnerships among market state and civil society have attracted
significant attention in a variety of issues such as international development forestry biodiversity and
climate change issues Bitzer 2010 Unlike the widely applied approach to seek for mutual financial
return in contemporary business cooperation 9 is becoming the new phenomenon for non commercial
organizations in order to deliver social and environmental impacts Bendell Collins and Roper 2010
Seitanidi 2010
As the microfinance sector is growing and becoming more deeply integrated with the formal financial
industry its services evolve from lending saving and money transaction to specialized services such
as small and medium enterprises SMEs micro insurances and pensions Mosley 2009 The
interaction often involves partners with a non traditional background which increases the complexity
of collaboration in the field However the systematic studies of partnership in this sector are still
limited due to the complex variety of forms Kolk van Tulder and Kostwinder 2008
9 strategic alliances as the original word
Van Tulder and Van der Zwart 2006 refer to the societal relationship as a triangle based on the
different rule of the game or institutions namely the state market and civil society Bebbington and
Riddell 1997 Since the societal triangle and its institution arrangement are complex none of the
three institutional spheres could operate in isolation of the others Van Tulder and Van der Zwart
In general a partnership describes both an organizational structure Clarke and Fuller 2011 and a
shared structure for decision making among key stakeholders Gray 1989 It is an interactive bargain
process among the participants in the society Partnerships can generate a culture that is enabling
knowledge sharing and learning among partners which can lead to innovation Seddon Billett
Clemans Ovens Ferguson and Fennessy 2008 Gray 1989 defines the collaboration relationship as
a process through which parties who see different aspects of a problem can constructively explore
their differences and search for solutions that go beyond their own limited vision of what is possible
The existing partnership terms such as social partnership multi agent partnership cross sector
partnerships and PPPs are often used interchangeable which has led to confusion and hinders
discussions about the issues concerned Van Tulder and Zwart 2006 Therefore Van Tulder and
Fortanier 2009 Selsky and Parker 2005 clarify the terms in a more systematic way In general it is
categorized as bipartite and tripartite partnerships The bipartite partnership describes the relationship
between two parties and the tripartite included all of the partners
Bipartite Partnership
The state government civil society nonprofit organizations NGOs
The collaboration often involves public services for example universities and hospitals In this
partnership the government seeks expertise and capacity whilst nonprofit organizations seek funding
Gazley and Brudney 2007 Selsky and Parker 2005 Gazley 2010 Seitanidi and Lindgreen 2010
Malloy and Agarway 2010 note that governments rely on a range of instruments to engage with
NGOs but that most often this engagement is contract based Van Tulder and Kostwinder 2007
indicate that Dutch companies and NGOs are particularly interested in using the state civil society
partnerships to achieve goal alignment between their own efforts in under developed regions
Market for profit civil society non profit
Beyond the search for new resources and more sustainable development approaches this type of
partnership also emerges due to the increasing review of their traditional philanthropic activities by
business and seeking for new business strategies both concerning corporate relevance and social
impact Austin 2000 The market civil society partnership is increasingly applied to frame
industrial standards which are absent in governments It is primarily applied to commodity sectors
Rob and Fortanier 2010 Similar areas have been covered by Rondinelli and London 2003 Van
Huijstee and Glasbergen 2010 Seitanidi and Crane 2008
The state government market for profit
A public private partnership PPP is most found in this category Van Tulder and Zwart 2006 A
PPP refers to a long term development relation in which government resources are pulled and private
agents involved in order to deliver societal goals Ferlie Lynn and Pollitt 2005 Rangan Samii and
Van Wassenhove 2006 Maskin and Tirole 2008 Zhang Wan Jia Gu 2009 Brinkerhoff and
Brinkerhoff 2011 It is described by Van Tulder and Zwart 2006 as a hybrid organizational form
between state and market
Tripartite Partnership
Tripartite partnerships are even more novel than bipartite partnerships Van Tulder and Fortanier
2009 This partnership includes all three spheres state market and civil society Glasbergen
Biermann and Mol 2007 Kolk Van Tulder and Kostwinder 2008 Selsky and Parker 2005 Seitanidi
and Lindgreen 2010 Bendell Collins and Roper 2010 The tripartite partnership intends to solve
problems resulting from the institutional void 10 Van Tulder and Van der Zwart 2006
Partnerships often aim to support social development by making use of collective intelligence The
actors in both bipartie and tripartite partnerships are frequently exposed to complex social challenges
for instance within the microfinance sector comflict has increased due to the tension between its
social mission of broad outreach and its impact on poverty reduction Furthermore partnerships may
carry significant risks and hidden pitfalls the process of finding mutual benefits can be timely and
resource consuming and partnership can only lead to a win win outcome for all stakeholders when
implemented appropriately In the next section a brief overview of game theory will be given in order
to further discuss the mechanism for cooperation
3 Game theory
Game theory has been widely applied in the field of social sciences economics and political science
Game theory attempts to mathematically capture behaviour strategic situations or games in which an
individual s success in making choices depends on the choices of others during the interaction
Myerson 1991 Fiestras Janeiro Garcia Jurado Meca and Mosquera 2010
Game theory began with the work from Zermelo 1913 Borel 1921 John von Neumann 1928 and
the book Theory of Games and Economic Behavior Von Neumann and Morgenstern 1944 Von
Neuman and Morgenstern studied zero sum games where the interests of two players were strictly
10 Institutional void where there are no generally accepted rules and norms according to which politics are to
be conducted and policy measures are to be agreed upon Hajer 2003
opposed From 1950 to 1953 John Nash has studied both non cooperative games and cooperative
games Shapley 1953 Selten 1969 and Harsanyi 1967 1968 extend to a more complex game
with sequential move and asymmetric information Azevedo and Paxson 2010
Games can be described formally at various levels of details Turocy and Stengel 2002 The game
can be classified as cooperative game and non cooperative game The two branches differ in the
interdependency among the players Brandenburger 2007 The non cooperative theory is the micro
branch of game theory which represents the short term interest based temporary benefit and
considers the prime challenge of decision making how to deal with non cooperative in which values
are distributed Van Tulder 2011 Cooperative game theory is the macro branch Aumann 1985
Thijssen 2003 which presents the thinking required to develop a longer term vision for creating
common wealth in the society rather than what the individual agents can achieve It deals with how
the value that the grand coalition all players together can achieve should be divided among all
players Thijssen 2003 Leyton Brown and Shoham 2008 Turocy and Stengel 2001
A game setting consists of two dimensions A and B represented by players a and b These players
are modeled as risk neutral
Chart 1 represents the non cooperative game where two players try to win from each other out of
their own interests or vision on a game The maximal total payoff point O for this game is 2 units for
each of the player s spending of 1 unit
Chart 2 represents the cooperative game where two players are cooperating in the game The minimal
total payoff point O for this game is 2 units for each of the player s spending of 1 unit
Chart 3 is the combination of the non cooperative and cooperative games The trade off line XY
and the focal point O are the most interesting part in this chart The XY line is the boundary line
between the negative sum game and the positive sum game It is often described as the zero sum
game The focal point O represents the equal distribution of 1 unit for both players in the non
cooperative game It is also the optimal payoff point for the negative sum game OCAP area which
no player will have gain or loss at this point It can be the starting point to step into a win win
cooperative game ODBQ area
The cooperative and non cooperative games are not necessarily exclusive to each other Cooperation
can also arise in non cooperative games move from point A to point O in the situation were players
find cooperation to be in their own best interests Ruigrok and Van Tulder 1995 Brandenburger
2007 indicate that the term coopetition or co existence of cooperation and competition implies
seeking win win as well as win lose opportunities it is therefore important to keep both possibilities in
mind Brandenburger and Nalebuff 1995 For instance if a communication mechanism has been
introduced in the prisoner s dilemma game 11 which is a non cooperative game choosing for
cooperation will lead to a higher total pay off than other ways of interaction Note that the total pay
off in a cooperative game can be larger than in a non cooperative game but this does not necessarily
apply that the individual pay off will be higher For instance in the cooperative game areas of XDO
and OQY in the chart 3 the total pay off is above the trade off line but only one play can benefit from
from the coopration
In essence zero sum games are conflict games in which whatever won by one player is lost by the
other This kind of game has been widely reflected in the contemporary business practice The non
cooperative game theory focus on the analysis of strategic choices Turocy and Stengel 2001 The
purpose is to make prediction on the outcome of the game It assumes that players cannot make
binding agreements such as cooperation The outcome of a game should be internally stable that no
player should have an incentive to deviate This has been formalized in the Nash equilibrium
Thijssen 2003 Concerning the microfinance sector failures in this game have direct negative
impacts on people s daily live winning the game does not add value as a whole to the underdeveloped
regions By contrast cooperative games can be non zero sum games in which the parties can negotiate
or cooperate in a way that brings them agreed or mutually desirable pay offs The major difference
between cooperative and non cooperative game is that cooperative game eliminates the possible lose
lose outcome point A in chart 3 In the next sections partnerships will be analysed from the
development and game theoretical perspectives to give an idea on how it can add value in global
4 Partnership from development prospective
Microfinanciarization implies the structural changes of microfinance from a non profit donation
based to a commercially attractive industry Fouillet and Augsburg 2007 The current microfinance
market is facing problems such as lack of information systems over crowding in tier one funding lack
of diversity of industry structure and absence of sufficient industry regulation Meanwhile the
problems also represent a potentially attractive market through a broad range of collaboration
opportunities among the multi stakeholders Before reviewing the mechanism of the microfinance
game on how collaborations taking places we will present a brief overview of these challenges of the
microfinance market first
4 1 Lack of information and communication technology ICT
ICT is considered an important factor for increasing work efficiency enabling information sharing
promoting transparency and supporting decision making Although ICT has not been wildly applied to
support the local development within the microfinance sector it has shown some positive results
11 Prisoner s dilemma http www ga metheory net dictionary PrisonersDilemma html
Michael Klein and Colin Mayer 2011 Parikh Javid Sasikumar and Ghosh 2006 emphasize the
need to develop a technological infrastructure that is easy to use and allows serving clients efficiently
The globally emerging mobile banking services represent an innovation in microfinance ICT Sterk
2011 states that micro pension services are often associated with lean premiums In order to sustain
the industry development there is a growth in demand for economy of scale Applying mobile
banking systems or specially designed administrative softwares can reduce the operational costs
exponentially Still Plogmann Adeel Nett and Wulf 2010 suggest that the overall infrastructure in
the underdeveloped regions is poor It is challenging to identify the ICT services and infrastructure to
be implemented in such different societal contexts Under such circumstances a successful
cooperation with local governments mobile operators and also traditional banks is vital for delivering
the microfinance service
4 2 Overcrowded investment in the top tier MFIs
Institutional microfinance investors have experienced excessive liquidity problem during the
microfinance crisis12 Since the top tier MFIs are considered as a safe investment class concerning
investment risk professional management and external supervision these MFIs are crowded by the
same group of institutional investors often with debt instruments According to Acci n 2007
microfinance investment vehicles allocate their investment to the top 50 Tier 1 MFIs suggesting
that the capital coming from mainstream investors is concentrated on a small selection of MFIs It may
actually be better to diversify the investment to lower tier MFIs Similarly Vanguri 2008 shows that
there is a significant negative relation between the amount of capital a MFI has and its return on
assets It indicates a spread investment strategy to Tier 2 or Tier 3 MFIs could be more beneficial for
the investors
Related to a game theory setting we can compete with other players in order to maximize our own
share of the pie or we can chose to cooperate with other players to make a bigger pie to share In the
later scenario we might both end up with a larger portion of the pie Concerning to the issue in
microfinance an application of multi stakeholder partnership to build up an investment and
development platform will assist to match supply and demand by rebalancing the information
asymmetry in the market to reduce and ultimately to eliminate poverty
4 3 Lack of diversity of industry structure
A company s profitability partly depends on the structure of the industry Porter 1990 From
competition point of view Porter s diamond model states five factors which have influences on the
profitability of companies 1 the intensity of rivalry among existing competitors 2 the threat of new
entrants 3 the threat of substitute products or services 4 the bargaining power of suppliers and 5 the
bargaining power of buyers However Ruigrok and Van Tulder 1995 argue that the diamond model
does not analyze all competitive forces from bargaining perspective leaving the dynamism of
12 6 microfinance crises that the sector does not want to remember
http www microfinancefocus com 6 microfinance crises sector does not want remember
networks excluded They indicate that it makes sense for all core firms with large production and
technological activities to position themselves in the core of the supply and distribution network and
play a leading role in the creation of added value in the institutional setting Interaction or
communication under such context has been defined in two directions horizontally with substitute or
complement player and vertically along the supply chain For instance Ambrosio Albal and
Bastiaense 2010 suggest that an effective co ordination among local institutions and organizations
horizontal co ordination and active involvement of population in the process of decision making and
implementation are critical At the same time the necessary access to external opportunities and
resources calls for attention on the interplays with exogenous agents Enhancing agency ability of
local actors often requires coalitions and interplays with these outside agents vertical co ordination
4 4 Absence of sufficient industry regulation
Much of the potential success of microfinance efforts depends on the regulations of MFIs However
industry regulation has often proved ineffective in developing countries due to information and data
collection problems weak accounting standards lack of professionalism and political interference
Haq Hoque and Pathan 2008 As microfinance has grown there is a demand on providing a positive
atmosphere in which all stakeholders interests will be protected allowing them to participate with
confidence In a game theory context it is translated to trust and reputation of the players The
regulation should overcome opportunistic behaviors such as ex ante opportunism adverse selection 13
and ex post opportunism moral hazard14 Experts and practitioners agree that developing prudential
and non prudential legal frameworks for microfinance institutions is essential for continued growth
Shankar and Asher 2010 suggest that there should also be awareness that government regulation in a
particular country is able to restrict microfinance from business Enabling regulation for microfinance
should be a policy to support the industry s healthy growth instead of regulation to constrain the
industry s development
4 5 Beyond the challenging microfinance market condition
There are also direct ways through which the impact of the microfinance sector can be enlarged An
important feature of microfinance is the low request collateral level when providing financial services
to the poor The incentive which keeps the borrower paying back is the expectation to be eligible of
continuously borrowing in the future Conning and Morduch 2011 mention two potential ways
which both request extensive supports from multi stakeholders involvement to make the business
profitable 1 By forming a self regulated group with the supervision taking place among the group
which will lower the requests of collateral 2 By offering technical assistance to the poor to increase
the profitability of the microfinance initiatives Gine Jakiela Karlan and Morduch 2010 indicate
that the group based mechanisms help the lender s bottom line but also generates riskier behaviour on
the part of borrowers They further indicated that the dynamic incentives are powerful tools for
13 Adverse selection http en wikipedia org wiki Adverse selection
14 Moral hazard http en wikipedia org wiki Moral hazard
reducing moral hazard even when lenders use individual liability contracts which are consistent with
recent shifts by micro lenders from group based mechanisms toward individual loans
5 Partnership from game theory prospective
The fundamental mechanism of partnership is similar to cooperative game where the mutual payoff is
the key which influences the partnership formation Platz and sterdal 2010 Partnerships aim to
establish synergies by combining core competences of the partners to form a unique offering that
neither partner could provide alone Savva and Scholtes 2005 When consider the incentive to form
partnership a key distinction is whether stakeholders are likely to cooperate when every individual
member is better off It greatly depends on the expectation of future redistribution possibility between
the potential partners The incentive structure in the microfinance sector varies due to the complex
social roles and nature function of multi stakeholders Misalignment of incentives may lead by
incomplete or asymmetric information where in microfinance the difference may appear between
subsidized investment and granted money because of the principal agent problem Conning and
Morduch 2011
Conning and Morduch 2011 also point out that much of the literature on microfinance incentive
mechanisms is limited to the monitoring intensive products and dynamic repayment incentives The
study shows that these products are costly because of the costly monitoring The product also creates
constraints that shape the capital structures and ownership of the MFIs Galema Lensink and
Spierdijk 2011 state that many institutional investors invest in microfinance by means of a fixed
income investment Equity finance still constitutes a minor part of microfinance funding P rilleux
Hudon and Bloy 2011 indicate that MFIs allocation of their productivity surplus varies according to
the ownership structure Non profit organizations NPOs and shareholders held MFIs exhibit a
tendency to largely keep their surplus within the MFI as a self financing margin rather than
transferring it to their clients and employees Cooperatives however tend to give the largest part of
their surplus to the employees and providers Ruigrok and Van Tulder 1995
Hudon 2008 studies the role of norms and values in the microfinance sector from the profit motive
profit to not for profit and the decision making style centralized to un centralized The study
suggests that the private sector will tend to produce the operating rules of the microfinance system
while the not for profit institutions that are using an inclusive decision making process are more likely
to influence the ethical norms in the sector the final objective of microfinance is not just to reach all
the poor but also to provide a way for them to systematically improve their long term income
Conning and Morduch 2011 indicate that the fundamental problem in microfinance is mainly caused
by difficulties of enforcing contracts together with the low asset holding of customers The
enforcement is basically the result of bargain power Ruigrok and Van Tulder 1995 present a
dependency scale to assess the outcomes of these five bargaining relations within an industrial
complex Chart 415 shows the parties relative bargaining positions towards each other
The upper categories refer to position of partners in the network and the lower part refer to the attitude
or strategy of the core firm referred to as players in this paper The relations are mainly categorised
into three types relative independence interdependence and dependency elative independence is
related to cooperation competition and compliance interdependency is linked with coalitions
dependency relation is invovled with direct control and structural control The study demonstrates the
nature of bargaining as dependency relations in an industrial network and central element in the
bargaining process is the concept of power As in the game theory setting the cooperative and non
cooperative games differ in the interdependency among the players Brandenburger 2007
6 Conclusion
For the microfinance sector to reach both the goals of financial sustainability and social impact at the
same time is tricky at this point in time Hermes Lensink and Meesters 2011 indicate that there is a
trade off effect between these two goals in which the outreach to the poor is negatively related to the
efficiency of MFIs So in what way can the conflict of interest be managed in the society
Multi stakeholder partnership offers the possibilities of goal alliance to microfinance clients MFIs
investors donors researchers policy makers These cooperative partnerships promote equality equity
and empowerment which are long term vision based Different from the traditional way of looking at
competition policy the cooperative mindset targets the game outcome at a more profitable area
Among the three societal spheres alliances could incorporate prior knowledge in order to deal with the
problems of free riding or the prisoner s dilemma both of which are caused by information asymmetry
With the understanding of each other s weakness and advantage higher tolerance may support multi
stakeholders to manage expectation and allow them to overcome difficulties in working towards a
15 Ruigrok and van Tulder 1995 state
1 Relative independence as the actors are shifting on the continuum towards a position of
interdependence they will gradually have to take into account the situation and objectives of the other
party which will make their cooperation less voluntary with the partner relatively independent the core
actor may feel obliged to comply and cooperate in an involuntary manner in certain areas
2 Interdependence a coalition may also aim to exclude other actors Depending on the strategic importance
of the deal coalition partners may hold each other hostage in which case the coalition creates considerable
exit barriers to the respective partners
3 Dependency direct control reflects a formal command structure in which divisions within the core firm
are told what to do by management it coincide with a strategy of vertical integration When it shifts to the
structural control it will lose any room for maneuvering A strategy of structural control aims to establish
an informal command structure allowing for a long term time frame in which the core firm s bargaining
partners are facing a high level of uncertainty
common goal of poverty alleviation Since the microfinance industry has a weak governance structure
partnerships will allow for the promotion of a common interest and filling in the gap in the
development arenas It also presents a new business model which enables the social network to
involve all spheres and to form a new grass roots connection that allows the excluded sections of
society to have a voice
Apart from preventing moral hazard and adverse selection communication in partnerships is also
important in helping the stakeholders to identify other stakeholders added value and bottom line
These are presented in chart 3 as the O point which indicates the minimal value in the cooperative
game and more importantly the maximal value in the non cooperative games such as the prisoner s
dilemma game It is important for stakeholders to identify their own position in the society network
recognize what type of partnership structure should be formulated base on the dependency scale
Furthermore seek proper bargain strategies in order to achieve the Millenium Development Goals
Creating partnership can be time consuming Therefore before stepping into a cooperation agreement
think in terms of long haul and be visionary Partnership formations in the microfinance sector operate
the same as those in contemporary business both require excellent managerial skills with the right
people in the right place a crucial factor for success
By nature microfinance has the inherent mission to emphasise on the triple bottom line financial
profitability social equity and environmental sustainability Looking beyond microfinance towards a
broader perspective multi stakeholder partnership is expected to create social spillover which will
deliver substantial positive effects on other sectors to move from socially careless to socially
responsible Many development areas can also be served by microfinance to provide solutions instead
of creating problems such as promoting sustainable development supporting clean energy
development providing bridging loans to the agricultural commodity chains supporting local
education and building health care infrastructures
To conclude a future research agenda on how to apply partnership in microfinance could potentially
benefit the development of the sector The topics of network theory ownership theory and how to
move from non cooperative game to cooperative game represent a rich area for further research to
support the social development in the underdeveloped regions
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Hermes Lensink and Meesters 2011 Outreach and Efficiency of Microfinance Institutions World
Hudon 2008 Norms and Values of the Various Microfinance Institutions International Journal of
Social Economics Emerald Group Publishing

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