Governing professional microfinance associations: the Tanzanian case through the prism of institutional design

Given recent criticisms, orienting the practices of microfinance institutions towards the achievement of their social missions is critical. Going beyond the dichotomous “government-or-market” view, we investigate a fundamental but barely studied actor: professional microfinance associations (MFAs). Despite their central position and the roles that they aim to endorse in the field, MFAs face organizational and governance obstacles limiting their impact, including free riding among member organizations. Our study explores the root causes of free riding within microfinance associations. Thanks to a three-month stay at the Tanzanian MFA, TAMFI, we carried out an immersive fieldwork, which enabled us to collect diverse types of qualitative data, in an inductive perspective: observations during multiple events related to TAMFI’s activities and initiatives, multiple semi-directed interviews with key, local, stakeholders, and reviews of specific documents and reports available at the MFA. Discovering the organizational issues faced by the MFA, we used Elinor Ostrom’s institutional design principles for governing collective action as theoretical lenses, which helped explain some of the mechanisms preventing the MFA to play its desired roles. Among root causes of free riding, we identified trade-offs related to membership heterogeneity, inappropriate distribution of inputs and outputs among member organizations, the lack of monitoring and sanctioning capacity of the associations, and a weak integration into regulatory processes, especially. With a theoretical contribution, we also suggest interdependencies among these institutional issues, which should be considered when governing microfinance associations.