Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia

de la Puente Pacheco, Mario Alberto; Arias, Elkyn Lugo; Torres, Jose Article Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: de la Puente Pacheco, Mario Alberto; Arias, Elkyn Lugo; Torres, Jose (2024) : Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 12, Iss. 1, pp. 1-15, https://doi.org/10.1080/23322039.2024.2391937 This Version is available at: https://hdl.handle.net/10419/321572 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Economics & Finance ISSN: 2332-2039 (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia Mario Alberto de la Puente Pacheco, Elkyn Lugo Arias & Jose Torres To cite this article: Mario Alberto de la Puente Pacheco, Elkyn Lugo Arias & Jose Torres (2024) Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia, Cogent Economics & Finance, 12:1, 2391937, DOI: 10.1080/23322039.2024.2391937 To link to this article: https://doi.org/10.1080/23322039.2024.2391937 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 23 Aug 2024. Submit your article to this journal Article views: 675 View related articles View Crossmark data Citing articles: 2 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 GENERAL & APPLIED ECONOMICS | RESEARCH ARTICLE Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia Mario Alberto de la Puente Pacheco a , Elkyn Lugo Arias b and Jose Torres c a Department of Political Science and International Relations, Universidad Del Norte, Barranquilla, Colombia; b Department of Business Management, Corporacion Universitaria Minuto de Dios, UNIMINUTO, Barranquilla, Colombia; c Universidad De Sucre, Sucre, Colombia ABSTRACT This research examines the development and evaluation of an optimization framework for the strategic deployment of financial resources in microfinance initiatives in Barranquilla, Colombia. The framework incorporates an array of variables, including market dynamics, institutional elements, project attributes, and firm-specific factors, to optimize project outcomes and long-term viability. With approximately 3,500 microfinance projects currently operating in the country, Colombia has a thriving microfinance sector that plays a crucial role in promoting financial inclusion and economic development. To ensure a representative sample for this study, 21 microfinance projects were selected using stratified sampling basedonkeycharacteristicssuchassector,size,andyearsofoperation.Theoptimization framework developed in this study incorporates an array of variables, including market dynamics, institutional elements, project attributes, and firm-specific factors, to optimize project outcomes and long-term viability. Comprehensive statistical techniques, such as factor analysis, principal component analysis, ANOVA, and t-tests, demonstrate substantial enhancements in critical performance indicators when the optimization framework is implemented. The experimental group, employing the framework, displays superior investment returns, reduced loan defaults, expanded beneficiary reach, and amplified employment generation compared to the control group utilizing conventional allocation strategies. These outcomes corroborate prior studies emphasizing the merits of data-driven methodologies for financial resource allocation in microfinance. The research contributes to the comprehension of effective capital deployment in microfinance initiatives and offers institutions a practical instrument to boost performance, attain financial sustainability, and support poverty reduction and economic growth. The findings have implications for microfinance organizations, policymakers, and academics, underscoring the significance of incorporating a comprehensive set of variables and integrating social capital considerations into microfinance approaches. Subsequent research can expand upon these discoveries to further investigate the efficiency of capital allocation and develop innovative strategies to strengthen microfinance programs. IMPACT STATEMENT This study demonstrates the significant impact of an innovative optimization model on improving the performance of microfinance projects in Barranquilla, Colombia. Microfinance projects utilizing the optimization framework showed higher returns on investment, lower default rates, increased beneficiary outreach, and greater job creation compared to those using traditional allocation methods. These findings underscore the potential of data-driven approaches to optimize resource allocation in microfinance, offering a valuable tool for practitioners to enhance both financial sustainability and social impact. The study's results have important implications for policymakers and microfinance institutions, highlighting the need for supportive environments that facilitate the adoption of such optimization models. This research contributes to the growing body of evidence on effective strategies for enhancing microfinance performance, with potential applications beyond Colombia to other developing countries facing similar challenges in financial inclusion and poverty alleviation. ARTICLE HISTORY Received 12 May 2024 Revised 2 July 2024 Accepted 31 July 2024 KEYWORDS Optimization framework; microfinance performance; experimental design; statistical analysis; poverty alleviation SUBJECTS Economics; Business; Management and Accounting; Industry & Industrial Studies CONTACT Mario Alberto de la Puente Pacheco [email protected] Department of Political Science and International Relations, Universidad Del Norte, Barranquilla, Colombia ß2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. COGENT ECONOMICS & FINANCE 2024, VOL. 12, NO. 1, 2391937 https://doi.org/10.1080/23322039.2024.2391937 Introduction In developing countries, microfinance is an instrument for advancing financial inclusion and fostering economic growth. Microfinance institutions strive to alleviate poverty, encourage entrepreneurship, and stimulate economic development by extending access to financial services, including loans and savings accounts, to individuals and small businesses that are often excluded from traditional banking systems. The efficient allocation of capital resources, which entails considering a wide array of factors and optimizing fund deployment to maximize financial and social returns, is crucial to the success and impact of microfinance projects. Developing optimization models to guide resource deployment decisions and understanding the determinants of efficient capital allocation are essential for enhancing the performance and sustainability of microfinance projects in Barranquilla, Colombia, a city with a diverse economic landscape. This study aims to address this need by constructing and evaluating an optimization model that takes into account market conditions, institutional factors, project characteristics, and company factors to improve capital allocation efficiency and project outcomes in Barranquilla’s microfinance sector. The existing literature on capital allocation in microfinance, which emphasizes the importance of considering a wide range of variables and employing data-driven approaches to optimize resource deployment, serves as the foundation for this study. By incorporating insights from previous research and adapting them to the specific context of Barranquilla, this study seeks to contribute to the understanding of efficient capital allocation in microfinance projects and provide valuable insights for practitioners, policymakers, and researchers in the field. To provide a clear and logical flow of information, allowing for a deep exploration of the topic and a thorough presentation of the findings, the study was structured in a comprehensive manner. Previous research on the key factors influencing capital allocation efficiency in microfinance projects was synthesized in the literature review section, which also explored the potential of optimization models to enhance project performance, providing a solid theoretical foundation for the study. To ensure a diverse representation of economic activities and enable an assessment of the optimization model’s applicability across different business contexts, the researchers selected a sample of 21 companies from various sectors in Barranquilla, Colombia. Structured surveys, semi-structured interviews, and the analysis of financial statements and project performance reports were involved in the data collection process, allowing for triangulation of data sources and enhancing the reliability and validity of the findings. The study employed descriptive statistics, factor analysis, principal component analysis, ANOVA, and t-tests to identify key efficiency factors and assess the optimization model’s impact on microfinance project performance, comparing outcomes between the experimental and control groups. The significance and usefulness of this research on optimizing capital allocation in microfinance projects in Barranquilla, Colombia, cannot be overstated. By developing and testing a comprehensive optimization framework that considers a wide range of factors, including market dynamics, institutional elements, project attributes, and firm-specific factors, this study provides a valuable tool for microfinance institutions to enhance their performance and sustainability. The findings demonstrate that the application of the optimization framework leads to substantial improvements in critical performance indicators, such as investment returns, loan default rates, beneficiary reach, and employment generation. These results underscore the potential of data-driven approaches to optimize resource allocation and maximize the impact of microfinance initiatives. Moreover, the research holds significant implications for policymakers, practitioners, and researchers in the field of microfinance. The insights gained from this study can inform the design and implementation of microfinance programs, not only in Colombia but also in other developing countries facing similar challenges. By highlighting the importance of considering a comprehensive set of variables and integrating social capital considerations into microfinance approaches, the study provides a roadmap for enhancing the effectiveness and sustainability of microfinance projects. Policymakers can utilize these findings to create an enabling environment that supports the adoption of optimization frameworks and data-driven decision-making in the microfinance sector, ultimately promoting financial inclusion and economic development. 2 M. A. DE LA PUENTE PACHECO ET AL. Furthermore, this research contributes to the advancement of knowledge in the field of microfinance and capital allocation efficiency. By demonstrating the applicability and effectiveness of the optimization framework in the context of Barranquilla, Colombia, the study fills a gap in the existing literature, which has primarily focused on other geographical regions. The robust methodology employed in this research, including the use of stratified sampling, experimental design, and comprehensive statistical analyses, ensures the reliability and validity of the findings. This study serves as a foundation for future research efforts aimed at further investigating the efficiency of capital allocation in microfinance projects and developing innovative strategies to strengthen microfinance programs. By building upon the insights provided by this research, scholars can continue to explore the complex dynamics of microfinance and contribute to the development of evidence-based practices that promote inclusive economic growth and poverty alleviation. The discussion section delved into the findings and their implications, shedding light on how the optimization model, by considering a comprehensive set of factors including market conditions, institutional factors, project characteristics, and company factors, led to significant enhancements in the financial and social performance of microfinance projects. The discourse underscored the potential advantages of embracing the model for various stakeholders in the microfinance ecosystem, such as microfinance institutions, policymakers, and regulatory bodies, in terms of driving superior outcomes and fostering financial inclusion and economic development. The primary aim of the research was to develop and empirically evaluate a model for the efficient allocation of funds in microfinance initiatives in Barranquilla, Colombia, taking into account a diverse array of factors to optimize project performance and sustainability. The ultimate goal was to contribute to poverty alleviation and economic growth in the region through the effective deployment of financial resources in microfinance projects. The literature on microfinance has extensively explored the potential of this financial tool in promoting economic development and alleviating poverty. Numerous studies have highlighted the positive impact of microfinance on various aspects of beneficiaries’lives, such as income generation, entrepreneurship, and social empowerment. However, the success and sustainability of microfinance projects heavily depend on the efficient allocation of capital resources. Inefficient allocation of funds can lead to suboptimal outcomes, such as high default rates, low profitability, and limited social impact (Hermes & Lensink, 2011; Serrano-Cinca & Guti errez-Nieto, 2014). While several studies have investigated the factors influencing the performance of microfinance institutions, there is a lack of research on the development and application of optimization models for capital allocation in microfinance projects. Existing studies have primarily focused on the impact of individual factors, such as market conditions, institutional environment, or project characteristics, on the efficiency of microfinance operations (Cull et al., 2011; Mersland & Strøm, 2009). However, there is a need for a comprehensive approach that integrates these factors into a unified optimization model to guide resource allocation decisions. Moreover, the majority of studies on microfinance have been conducted in the context of Asian and African countries, with limited research focusing on the Latin American region, particularly Colombia. Given the unique socio-economic conditions and regulatory environment in Colombia, it is crucial to examine the determinants of efficient capital allocation and develop context-specific optimization models to enhance the performance and sustainability of microfinance projects in this region. This study aims to address these research gaps by developing and testing an optimization model for capital allocation in microfinance projects, specifically in the context of Barranquilla, Colombia. By considering a wide range of factors, including market conditions, institutional factors, project characteristics, and company factors, this study seeks to provide a comprehensive framework for optimizing resource allocation in microfinance initiatives. The application of this model to the diverse economic landscape of Barranquilla will offer valuable insights into the effectiveness of such optimization techniques in improving the financial and social performance of microfinance projects. Furthermore, by focusing on the Colombian context, this study will contribute to the limited body of knowledge on microfinance in Latin America and provide practical recommendations for practitioners, policymakers, and researchers working in this region. COGENT ECONOMICS & FINANCE 3 The research had limitations, such as its focus on microfinance projects in Barranquilla, Colombia, which may limit the applicability of the findings to other geographical areas or economic settings. Moreover, the study did not examine the long-term impact of the model on the financial sustainability and social reach of microfinance institutions due to the limited time period of data collection and analysis. The central research question was: How can a model based on key efficiency factors improve fund allocation and enhance the performance of microfinance projects in Barranquilla, Colombia? By addressing this question, the study sought to advance the understanding of efficient fund allocation in microfinance initiatives and provide practitioners with a practical tool to optimize resource deployment and achieve better financial and social outcomes. Future research could investigate the applicability of the optimization model in various geographical contexts, assess its long-term impact on microfinance institutions, and incorporate advanced analytical techniques to further enhance the model’s effectiveness. Literature review Before delving into the previous research related to this study, it is essential to understand the grand theory that underlies the investigation. This research is grounded in the theory of capital allocation efficiency, which posits that the optimal allocation of financial resources is crucial for the success and sustainability of economic ventures (Feldstein & Horioka, 1980; Tobin, 1984). The theory suggests that efficient capital allocation involves directing resources towards the most productive and profitable opportunities while minimizing risks and costs (Fama, 1980; Jensen & Meckling, 1976). In the context of microfinance, the theory of capital allocation efficiency is particularly relevant, as microfinance institutions often operate in resource-constrained environments and serve vulnerable populations. Efficient allocation of capital resources is critical for microfinance institutions to achieve their dual objectives of financial sustainability and social impact (Hermes & Lensink, 2011). The theory provides a framework for understanding the factors that influence capital allocation decisions and the consequences of inefficient resource allocation in microfinance projects. The application of the capital allocation efficiency theory to microfinance has led to the development of various models and approaches aimed at optimizing resource deployment in this sector (SerranoCinca & Guti errez-Nieto, 2014). These models typically consider a range of factors, such as market conditions, institutional environment, project characteristics, and organizational attributes, to guide capital allocation decisions (Cull et al., 2011; Mersland & Strøm, 2009). By grounding this research in the theory of capital allocation efficiency, the study seeks to contribute to the theoretical understanding of efficient resource allocation in microfinance projects. The development and testing of an optimization model that incorporates key factors influencing capital allocation decisions align with the principles of this grand theory. The findings of this study are expected to provide empirical evidence supporting the application of the capital allocation efficiency theory in the context of microfinance projects in Barranquilla, Colombia. Having established the theoretical foundation, the following paragraphs will explore the previous research related to capital allocation efficiency in microfinance, identifying the gaps that this study aims to address and highlighting the potential contributions of this investigation to the existing body of knowledge. The Colombian government has recognized the importance of microfinance in promoting financial inclusion and economic development, and has implemented various policies to support the growth and sustainability of the sector. One notable policy is the ‘Banca de las Oportunidades’(Banking of Opportunities) program, which was launched in 2006 as a joint initiative between the Colombian government and the private sector (Banca de las Oportunidades, 2021). The program aims to expand access to financial services for low-income and marginalized populations, particularly in rural areas, by providing funding and technical assistance to microfinance institutions (MFIs). Through this program, the government has sought to create an enabling environment for the development of the microfinance sector and to promote the adoption of best practices in terms of financial inclusion and social impact (Ministerio de Hacienda y Cr edito P ublico, 2019). 4 M. A. DE LA PUENTE PACHECO ET AL. Another important policy development in the Colombian microfinance sector is the establishment of a comprehensive regulatory framework. In 2015, the government issued Decree 2555, which provides a clear set of rules and guidelines for the operation of MFIs in the country (Presidencia de la Rep ublica de Colombia, 2015). The decree defines the legal status of MFIs, sets capital and liquidity requirements, and establishes reporting and transparency obligations. This regulatory framework has helped to promote the stability and credibility of the microfinance sector, while also ensuring that MFIs operate in a manner that protects the interests of their clients and contributes to the overall development of the financial system (Superintendencia Financiera de Colombia, 2020). In addition to these policies, the Colombian government has also implemented various initiatives to support the capacity building and professionalization of the microfinance sector. For example, the ‘Programa de Educaci on Financiera’(Financial Education Program) provides training and resources to help MFIs improve their financial management practices and better serve their clients (Comisi on Intersectorial para la Educaci on Econ omica y Financiera, 2017). Moreover, the government has collaborated with international organizations, such as the Inter-American Development Bank and the World Bank, to promote knowledge sharing and best practices in the microfinance sector (Departamento Nacional de Planeaci on, 2018). These efforts have contributed to the strengthening of the institutional capacity of MFIs in Colombia and have helped to ensure that the sector remains responsive to the evolving needs of its clients and the broader economic development goals of the country. The success and impact of microfinance projects in developing countries like Colombia heavily rely on the efficient allocation of capital. The efficiency of capital allocation in enterprises has been identified as a significant determinant of economic growth and development (Wang et al., 2022), emphasizing the importance of understanding and optimizing this process in the context of microfinance projects in Barranquilla, Colombia. Microfinance services have the potential to promote economic growth and reduce poverty by improving resource allocation, fostering market development, and facilitating the adoption of better technologies (Bakhtiari, 2011). Social capital, which refers to the networks, norms, and trust that facilitate cooperation and coordination within communities, has been found to play a vital role in enhancing the efficiency of microfinance operations (Ikhar et al., 2022; Marconatto et al., 2016). This is particularly relevant for the present study, as it aims to develop an optimization model that considers not only financial factors but also social and institutional aspects that influence the efficiency of capital allocation in microfinance projects. The creation and utilization of social capital through community-based development projects can improve the effectiveness of microfinance initiatives, as it helps to build trust, reduce information asymmetries, and facilitate collective action. During periods of financial integration, as observed in the 1990s, the efficiency of capital allocation in developing countries has been shown to improve (Mann, 2020), highlighting the importance of wellfunctioning financial markets and institutions in facilitating the efficient allocation of resources. In the context of Barranquilla, Colombia, understanding the institutional factors that influence the efficiency of capital allocation in microfinance projects is crucial for developing an effective optimization model. However, challenges such as corruption can distort this process by reducing the marginal return per unit of investment (O’Toole & Tarp, 2014), emphasizing the need for transparent and accountable financial systems. The development and application of an optimization model that considers market conditions, institutional factors, project characteristics, and company factors have the potential to significantly improve the financial and social outcomes of microfinance projects in Barranquilla, Colombia. Halim et al. (2018) emphasize the importance of adopting a customer-centric approach and employing strategies such as service marketing mix and market orientation to enhance the performance of microfinance institutions, which aligns with the present study’s focus on considering market conditions in the optimization model, as understanding and meeting customer needs effectively is crucial for the success of microfinance projects in Barranquilla. The importance of a holistic approach to microfinance optimization is supported by several reputable sources, which highlight the need to consider a wide range of variables to ensure the success of these initiatives. Furthermore, the empowerment of women through microfinance programs and community-driven development projects has been identified as a strategy to enhance social capital and improve resource COGENT ECONOMICS & FINANCE 5 allocation (Ikhar et al., 2022; Kaka & Abidin, 2014). The present study aims to contribute to the understanding of how these aspects influence the efficiency of capital allocation and project performance by considering gender-related factors and the role of women in microfinance projects. Efforts to improve the efficiency of capital allocation in enterprises are essential for driving economic growth and development (Bushman & Smith, 2002; Fontalvo & De La Puente, 2023). The present study builds upon this premise by developing an optimization model that considers a wide range of factors to improve the efficiency of capital allocation in microfinance projects in Barranquilla, Colombia. By allocating capital to value-creating opportunities and withdrawing it from value-destroying ones, organizations can enhance their competitiveness and sustainability. Moreover, Caballero-Montes et al. (2021) underscore the importance of considering market conditions, particularly the level of competition, when making regulatory decisions that impact the microfinance industry. This highlights the need to align regulatory frameworks with market dynamics to ensure optimal outcomes, which is relevant to the institutional factors considered in the proposed optimization model for microfinance projects in Barranquilla. Hermes and Hudon (2018) provide further support for the comprehensive approach taken in this study through their systematic review of determinants affecting the financial and social performance of microfinance institutions. Their findings indicate the complexity of factors involved in microfinance optimization, suggesting that an effective optimization model should account for a wide range of variables to drive success. Additionally, Chasanah et al. (2023) propose a framework for post-project sustainability evaluation in microfinance, emphasizing the dual goals of social impact and financial sustainability. This dual focus aligns with the objectives of the present study, which aims to develop an optimization model that balances social and financial objectives effectively to enhance the performance and sustainability of microfinance projects in Barranquilla. The potential of data-driven and systematic approaches to capital allocation in microfinance has been increasingly recognized, as they offer a structured framework for optimizing capital deployment across diverse economic sectors. By leveraging mathematical models and axiomatic principles, these approaches ensure that resources are allocated efficiently, maximizing returns while managing risks effectively (Heidy Rico et al., 2024; Kalkbrener, 2005; Lugo-Arias et al., 2024). This aligns with the present study’s objective of developing an optimization model for capital allocation in microfinance projects in Barranquilla, Colombia, which considers a wide range of factors, including market conditions, institutional factors, project characteristics, and company factors. The impact of microfinance on poverty alleviation and entrepreneurship is another key area of study that is relevant to the present research. Ribeiro et al. (2022) suggest that while microfinance can foster development among its clients, a more holistic approach is needed to enhance outcomes and better understand the beneficiaries. This aligns with the comprehensive approach taken in this study, which considers a wide range of factors influencing the efficiency of capital allocation in microfinance projects, ultimately aiming to contribute to poverty alleviation and economic development in Barranquilla. Furthermore, the role of social capital in the effectiveness of microfinance cannot be overlooked, as Fang and You (2019) emphasize the importance of building and utilizing social capital to improve the effects of microfinance interventions. This insight is particularly relevant to the present study, as the optimization model considers institutional factors and social aspects that influence the success of microfinance projects in Barranquilla. By incorporating social capital considerations into the model, the study aims to provide a more comprehensive approach to optimizing capital allocation and enhancing the overall impact of microfinance initiatives in the region. Moreover, understanding the role of intellectual capital and its interaction effects on performance is essential for microfinance institutions seeking to enhance their success. Kamukama et al. (2010) emphasize the importance of identifying the intellectual capital mix that drives success, enabling institutions to make informed decisions regarding capital allocation strategies. In the context of the present study, this underscores the need to consider the intellectual capital of the participating microfinance institutions in Barranquilla when developing and evaluating the effectiveness of the optimization model. 6 M. A. DE LA PUENTE PACHECO ET AL. The relationship between capital allocation, innovation, and performance in microfinance is a crucial aspect to consider when developing optimization models. Bradley et al. (2012) highlight the mediating role of innovative practices in the financial, social, and human capital-performance relationships within microfinance programs. This suggests that the proposed optimization model should take into account the innovative practices employed by microfinance institutions in Barranquilla, as they can significantly influence the effectiveness of capital allocation and overall project performance. Research method The objective of this study was to analyze the efficient allocation of capital in microfinance projects in the city of Barranquilla, Colombia, and to develop an optimization model that could improve the performance and sustainability of these projects. Microfinance institutions often work with a diverse range of small businesses and entrepreneurs across different sectors of the economy. While microfinance is typically associated with providing financial services to low-income individuals or small businesses, these recipients can be engaged in various economic activities. The study’s approach of including companies from different sectors likely refers to the microfinance institutions or organizations that provide microfinance services, rather than the recipients of microfinance. The research aimed to identify the key factors influencing capital allocation efficiency and to assess the applicability of the optimization model across a diverse range of economic sectors. By examining the practices and experiences of 21 companies involved in microfinance projects, the study sought to provide insights into the challenges and opportunities associated with optimizing resource allocation in this context. This sample size was determined through a stratified sampling technique, which aimed to ensure a diverse and representative selection of companies involved in microfinance initiatives. The researchers chose this approach to capture the heterogeneity of the business landscape in Barranquilla and to assess the generalizability of the optimization model across different economic contexts. The selection process involved using the Barranquilla Chamber of Commerce database to obtain reliable information on company characteristics, including sector, number of employees, annual revenue, and microfinance experience. The population of companies was divided into strata based on these characteristics, and a proportional number of companies were randomly selected from each stratum to be included in the sample. This stratified sampling technique ensured that the sample was representative of the business population in Barranquilla. In the case of this study in Barranquilla, the diverse sectors mentioned likely refer to the various economic activities that microfinance institutions in the city support. Barranquilla, as a major port city and industrial center in Colombia, has a diverse economic landscape. Microfinance institutions in the area may serve a wide range of small businesses and entrepreneurs across different sectors of the local economy. For example, they might provide loans to small-scale manufacturers, artisans, local retailers, service providers, or entrepreneurs in the city’s growing tourism sector. The central research question guiding this study was: How can an optimization model based on key efficiency factors improve capital allocation and enhance the performance of microfinance projects in Barranquilla, Colombia? To address this question, the study hypothesized that the application of an optimization model that considers market conditions, institutional factors, project characteristics, and company factors will significantly improve the financial and social performance of microfinance projects in Barranquilla, Colombia, compared to traditional capital allocation methods. This hypothesis is grounded in the existing literature, which has highlighted the importance of efficient capital allocation for the success and sustainability of microfinance projects (Hermes & Lensink, 2011; Serrano-Cinca & Guti errez-Nieto, 2014). The hypothesis proposes that the application of a comprehensive optimization model, which takes into account a wide range of factors, will lead to improved financial performance and enhanced social impact in microfinance projects. 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PLOS One,17(7), e0270588. https://doi.org/10. 1371/journal.pone.0270588 Appendix A. Sample questionnaire Introduction: We greatly appreciate your willingness to take part in this interview. Your experiences and insights are invaluable for our research on capital allocation efficiency in microfinance projects. Please feel free to openly share your thoughts and opinions, as your responses will be kept strictly confidential and used solely for the purpose of this study. General Information: 1. Can you briefly describe your company’s involvement in microfinance projects? 2. What is your current role in the company, and how long have you been in this position? Microfinance Project Experience: 3. What were the main objectives of the microfinance projects your company has undertaken in the past three years? 4. How many microfinance projects has your company been involved in during 14 M. A. DE LA PUENTE PACHECO ET AL. this period? 5. What factors did you consider when making capital allocation decisions for these projects? 6. How did your company decide to allocate capital to these microfinance projects? 7. Did you face any challenges or obstacles while allocating capital to microfinance projects? If yes, please elaborate. Market Conditions and Institutional Factors: 8. In what ways do institutional factors, such as the regulatory environment, political stability, and financial infrastructure, affect your company’s participation in microfinance projects? 9. How do market conditions, such as economic growth, inflation rates, and market demand, influence your company’s decisions to invest in microfinance projects? Project Characteristics: 10. How do you determine the target population for your microfinance projects? 11. What are the typical loan sizes, repayment terms, and interest rates of the microfinance projects your company has been involved in? 12. Based on your company’s experience, what are the key success factors for microfinance projects? Company Factors: 13. What role does management expertise play in the success of your company’s microfinance projects? 14. How does your company’s financial health impact its ability to invest in microfinance projects? 15. What lessons have you learned, and how has your company’s experience in microfinance evolved over time? Capital Allocation Optimization: 16. In your opinion, what are the potential benefits of applying an optimization model for capital allocation in your company’s microfinance projects? 17. How does your company currently optimize its capital allocation for microfinance projects? 18. What challenges or barriers do you foresee in implementing an optimization model for capital allocation in your company? 19. Are you familiar with any optimization models or techniques for capital allocation in microfinance? Future Prospects: 20. What improvements or changes would you like to see in the way your company allocates capital to microfinance projects? 21. How do you see your company’s involvement in microfinance projects evolving in the future? Conclusion: 22. Do you have any questions or concerns regarding this research study? 23. Are there any other aspects of capital allocation in microfinance projects that you would like to discuss? Your time and valuable insights are greatly appreciated. Thank you for your participation in this interview. COGENT ECONOMICS & FINANCE 15