Institutional framework in developing economies: Do all dimensions matter for financial intermediation by microfinance deposit-taking institutions?
Journal of Financial Regulation and Compliance
ISSN: 1358-1988
Article publication date: 14 May 2018
Abstract
Purpose
The purpose of this paper is to establish the relationship between institutional framework of regulative (formal rules), normative (informal norms) and cultural-cognitive (cognition), and their effects on financial intermediation by microfinance deposit taking institutions (MDIs) in developing economies like Uganda.
Design/methodology/approach
Data collected from a total sample of 400 poor households and 40 relationship officers located in rural Uganda were processed using statistical package for social sciences and analysis of moment structures to establish the relationship between institutional framework of regulative, normative and cultural-cognitive, and their effects on financial intermediation by MDIs in developing economies.
Findings
The results showed that the three dimensions of regulative (formal rules), normative (informal norms) and cultural-cognitive (cognition) significantly affect financial intermediation by MDIs in developing economies like Uganda. In addition, as a unique finding, two new dimensions of procedural and declarative cognition emerged from cultural-cognitive framework to determine financial intermediation among MDIs in developing economies, specifically in Uganda.
Research limitations/implications
The study collected data from only poor households and relationship officers located in rural Uganda. It ignored peri-urban and urban areas in Uganda. In addition, the study focused only on MDIs and ignored other financial institutions. Besides, the study was purely quantitative, therefore, further research through interviews may be useful in future. Furthermore, the study was carried out in rural Uganda as a developing economy. Thus, future research using the same variables in other developing economies may be useful.
Practical implications
Managers of financial institutions and policy makers should know that market functions of financial intermediaries in developing economies are promoted by institutional framework of regulative, normative and procedural and declarative cognition that lowers transaction cost and promotes information sharing. Therefore, more efforts should be directed towards strengthening the existing institutional framework of regulative, normative and cognition to promote financial intermediation by financial institutions such as MDIs.
Originality/value
This paper is the first to test the relationship between institutional framework and their effects on financial intermediation by MDIs in developing economies. The results revealed existence of two new factor structures of procedural and declarative cognition in explaining financial intermediation by MDIs in developing economies like Uganda. This is sparse in financial intermediation literature and theory.
Keywords
Citation
Okello Candiya Bongomin, G., Akol Malinga, C., Munene, J.C. and Mpeera Ntayi, J. (2018), "Institutional framework in developing economies: Do all dimensions matter for financial intermediation by microfinance deposit-taking institutions?", Journal of Financial Regulation and Compliance, Vol. 26 No. 2, pp. 271-286. https://doi.org/10.1108/JFRC-02-2017-0025
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited