The double bottom line in practice: financial sustainability and pro-poor social mission in Nepalese microfinance

This research explores the dual bottom-line tradeoff in Nepalese microfinance institutions (MFIs) between the goal of financial sustainability and the social mission of agricultural lending. Building on agency theory, institutional theory and the triple bottom line (TBL) perspective, we build an integrated framework for analyzing mission drift dynamics. We utilize a large panel dataset of 51 licensed MFIs over 15 quarters (October 2021 to July 2025), which gives a complete panel of 765 MFI–quarter observations. We have used fixed effects, dynamic panels (System GMM) and threshold regression techniques for analysis of MFIs. Our results show a non-linear trade-off of profitability, the inverse relationship between ROA and agricultural lending and it is significant but it applies to institutions lending more than 1.5 percent with about three times stronger effect when compared to other MFIs. The trade-off is enhanced for size and capitalization, but not by regulatory considerations. The findings show that mission drift is not an inexorable outcome, but it accelerates past certain levels of profitability to spark alternative trajectories for MFIs vis-a-vis their financial performance. These results have important implications for Nepal Rastra Bank (NRB) regulators striving to strike a balance between financial inclusion and stability, MFIs managers optimizing across strategic trade-offs, as well as investors and donors contemplating dual performance objectives in an emerging market microfinance sector.