No abstract

Microfinance promises to trim down poverty. To achieve this noble objective microfinance institutions (MFIs) have to become steady profitable because donor constancy is not a given. Thus important question is: what factors drive the financial sustainability of MFIs? Using data on 217 MFIs in 101 countries distributed by region and type of MFIs over the period of 1998-2006, we report three important findings. First, we show that a high quality credit portfolio, coupled with the application of sufficiently high interest rates that allow a reasonable profit and sound management are instrumental to the financial sustainability of MFIs. Second, we show that the percentage of women among the clientele has a weak statistically non-significant negative effect on financial sustainability of MFIs. Third, we find that the client outreach of microfinance programs and the age of MFIs have a positive but lesser impact on attainment of financial sustainability. The policy implication is that MFIs have to emulate profit-making banking practices by implementing a sound financial management and good managerial governance to assure their financial sustainability.

The paper examines the effect of regulation on microfinance institutions' (MFIs) sustainability and outreach in Sub-Saharan Africa (SSA). Using unbalanced panel data from 2002 to 2012 for 30 countries and a multilevel estimation technique, we find that regulation helps improves the sustainability and breadth of outreach but not the depth. We also find that MFIs that accept deposits have better sustainability but tend to serve the marginal poor. Finally, regulatory quality has a positive impact on outreach and sustainability. Overall, the paper casts new light on the contribution of regulation to the dual objectives of microfinance.

This paper discusses credit risk assessment through conventional and specialized credit evaluation metrics. I find that low credit risk is a direct consequence of sound implementation of good governance practices and sustainable financial performance through sound qualitative and quantitative risk management tools. Furthermore, I find that the depth and breadth of outreach and write-off are by some margin the two most important determinant indicators of a microfinance institutions' (MFI's) credit risk control. In addition, I demonstrate that there is no significant statistical difference in terms of risk management among the different types of MFIs. Results also suggest that constructive regulation to promote MFIs has a nonnegligible impact on the risk assessment of MFIs.

The paper uses two rounds of survey to examine the relative returns to micro-credit for small-scale businesses in two regions of Ghana. Propensity scores matching and the nearest neighbour matching are used to assess the return to micro-loans on retail businesses of clients and non-clients. Micro-credit impacts on sales, stock, expenses and profit for clients as compared with non-clients. Women-owned businesses produce higher returns from micro-credit than men-owned businesses. Individual and enterprise characteristics influence access to micro-credit. The paper offers policy recommendations to microfinance institutions on whom and which business activity to give credit.