Supporting microfinance via professional associations: Analysis of the Tanzanian case through the lens of Ostrom's institutional design principles.

Given recent criticisms, orienting the practices of microfinance institutions towards the achievement of their social missions is critical. Going beyond the usual dichotomous “government-or-market” view, we address the intervention of a fundamental but barely studied actor: professional microfinance associations. Despite their central position and the numerous roles that they endorse in microfinance industries, microfinance associations face governance obstacles limiting their impact, including free riding among member organizations. This paper explores the root causes of free riding within microfinance associations with an inductive study carried out at the Tanzanian associations. Via an immersive fieldwork, we mobilized observation, interviews with key stakeholders of the local microfinance sector, and used Elinor Ostrom’s institutional design principles for governing collective action as theoretical lenses. 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.