Intended and unintended effects of specialized regulation on microfinance institutions' double-bottom line management

Taking advantage of the passage of a microfinance law in Italy (2014), we explore the rationales for introducing microfinance-specific regulation in high-income welfare states and the potential effects that this process may have on MFIs' social and financial performances (i.e. double bottom line). Our findings suggest that the institutional transformation of MFIs, in addition to product design and target group required by the new regulation, has unintendedly shifted their balance in favor of financial over social performance. This mainly applies to non-profit organizations and cooperatives. Microfinance-specific regulation in high-income welfare states may reflect the emerging trends of market-based rationality of public policy. When regulatory arrangements for MFIs are stipulated irrespectively of MFIs' original mission the structural causes of financial exclusion may be reinforced. The underlying rationales for this trade-off should be considered to prevent and mitigate the unintended effects of microfinance-specific regulation.