Ethics of microfinance institutions: a study applying the radical affinity index

Purpose Recognising the importance of ethics in making the financial system accessible and fair, this study aims to determine if microfinance institutions (MFIs) are ethically responsible in practice, identifying characteristics (such as entity type, geographic area and assets) that enhance their ethical performance. Design/methodology/approach The study focuses on a sample of 62 entities included in the World Bank databases, and studies their main data and websites. The radical affinity index (RAI), adapted to this type of institution, is used to evaluate the ethical perspective from its four components: transparency, placement of assets, guarantees and participation. Findings MFIs have high levels of transparency. Placement of assets is the next best-rated aspect, although it shows significant variability. Most institutions offer alternative guarantees to the traditional ones, while participation is shown to be the weakest aspect in the sample. Regarding the type of entities, NGOs and non-banking financial institutions exhibit higher ethical standards compared to banks and rural banks. Sub-Saharan Africa is the region with the lowest scores, showing a significant difference in the index values and its components of transparency and participation. Practical implications Some weaknesses of MFIs, such as those related to participation, could be corrected internally. The situation in Africa suggests the need to deepen regulatory aspects too. Originality/value To the best of the authors’ knowledge, this is the first paper to apply the RAI to MFIs, and it provides a new perspective on ethical standards by these institutions.