Public Equity Capitalization of Microfinance Institutions: Testing the Validity of Grassroots Development Theory in Economic Development Using Investor Decision Theory

Date of Award


Degree Type


Degree Name

Doctor of Philosophy (PhD)


Economic and Workforce Development

First Advisor

Kenneth Malone

Advisor Department

Economic and Workforce Development


In this study, investor decision theory was used as the basis for a survey that demonstrates the large barriers faced by those promoting microfinance institutions (MFIs) and public capital markets as the mechanism for implementing grassroots development theory. Investor decision theory, supported by the data from this study, raises serious concerns over the validity of grassroots development theory as a valid tool for economic growth in developing countries. In the context of this study, grassroots development theory promotes entrepreneurship across the base of a developing country's population by encouraging capital infusion at the local instead of national or industry level and promoting local ownership, local decision-making, and local capital building. A common method for implementing grassroots theory in developing countries is through microfinance institutions (MFIs) providing loans to micro-enterprises. While individual MFIs have encouraging performance, the aggregate of MFI loans globally are too small to measurably impact developing nations' economies. Thus, for grassroots development theories to be implemented successfully, there needs to be an expansion of MFIs' role. Although available data is unclear if current supply from MFIs is in balance with demand from entrepreneurs, it is clear that the current capitalization structure of MFIs severely limits the total impact that they can have on developing nations. In order to broadly expand MFIs impact, they must be capitalized through inexpensive public equity from developed nations. Publicly traded mutual funds (PTMFs) offer a sensible method for accessing this inexpensive capital. Investor decision theory was used as the basis for data collection from socially responsible PTMF managers. The findings show that large-scale change is needed in the way in which MFIs operate, the structure of the MFI industry and regulation of MFIs in order to attract PTMF equity investments. The challenging nature of this restructuring is investigated using the context of Ghana.