The linkages between organizational behavior and characteristics of donor capital flow: The case of microfinance capital flow in Sierra Leone

Abstract

Capital, in the form of foreign aid, is a very substantial revenue form for many developing nations. Foreign aid is integral to strategies of nations working to relieve human suffering and achieve a secure, stable world. One of the greatest impediments to foreign aid effectiveness is unpredictability, or capital volatility. At a macro level, capital volatility’s impact in developing nations is multiples of that in the industrialized world. Capital volatility has been shown to substantially impact social welfare costs and both the efficiency and effectiveness of aid. Thus, volatility reduces the value of foreign aid. This investigation explored linkages between organizational behavior and capital volatility by analyzing the promises and disbursement conditions agreed to by donors and microfinance recipient organizations: capital investment deals. Capital volatility is defined as the difference between commitments and disbursements. The examination utilized a case study of a donor collaborative project—Microfinance Institution Technical Assistance Facility in Sierra Leone—the first of over 20 created to develop an inclusive, pro-poor financial sector by assisting microfinance institutions. Disbursement conditions and bureaucracy alone are not sufficient explanations of capital volatility. A deeper analysis revealed the role of each party’s perceptions and expectations in their respective understandings of a performance based agreement that defines the deal as a relationship, not just a legal document. These understandings are the bases of each party’s decisions and actions, often with ethical implications and consequences. This project has produced a theoretical lens – the Capitalflow Bureaucratic Triad - to understand this complexity and plan future volatility reducing strategies.

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