Do microfinance institutions engage in sustainable practices? An application of the textual and TOPSIS approach

The purpose of the study is to evaluate the sustainability of microfinance institutions (MFIs) by considering environmental, social and governance (ESG) by employing a novel text-based approach. The research constructs the index by considering ten broad dimensions of ESG and propounds a holistic approach and a strong proxy for evaluating the role of MFIs in sustainable activities. The study uses a sample of annual reports of seventy microfinance institutions in South and Southeast Asiafrom 2013 to 2020. We find that social activities are the top priority of MFIs, as the results reveal the highest frequency of social engagements compared to environmental and governance dimensions. Our results also show that MFIs in the South Asian region perform better in environmental and social activities in comparison to the MFIs in the Southeast Asian region. The results have significant policy implications for investors, donors, and regulators of microfinance institutions.