Financing and financial sustainability of microfinance institutions (MFIs): a conceptual view

Abstract

Recent evidence shows that MFI financing continues to evolve with an increased inclination towards commercial financing. Taking stock on MFI financing and refocusing on the relationship between financing options and financial sustainability (FS) is unavoidable. The authors consummated a literature review based on complementing the little evidence on the subject with both theoretical and implied evidence from related studies in unpacking the relationship. Though donations are losing grip as a popular MFI financing option, review of literature recommends smart subsidies to spur FS and counter inefficiency, mis-targetting, dependency and distortions. As much as debt addresses agency problems and endorses FS, it has to be kept within limits to curb liquidation and mission drift. Deposit attraction augments FS and outreach, though MFIs must prepare to foot licensing costs, otherwise, mission drift ensues. Equity, though scarce in microfinance, is cheap and additive to FS. The authors suggest that MFIs should consider commercial funding, whilst keeping a check on the downside of each commercial financing option to augment FS and multiply outreach

Effects of Transfromations on Financial Performance of Microfinance NGOs in Kenya

“…This result concurs with the findings of Dawar (2014). Interestingly, Bassem (2012), Adhikary et al (2014) and Bayai et al (2016a) found dissimilar results noting that the financial performance of new microfinance institutions is poor because of low technology, lack of sufficient capital, small client base and operational challenges.…”

“…Deposits to total assets ratio indicates the segment of the capital structure of the microfinance institution that is financed by public savings (Bogan, 2012;Awaworyi et al, 2014). Deposits provide cheaper sources of funding and as such lowers the cost of operations for microfinance institutions and in return increase the financial sustainability of the microfinance institutions through increased profitability (Helms, 2006;Bayai et al, 2016a). Therefore, the study expected a positive effect of deposits to total assets ratio on the indicators of financial performance (Awaworyi et al, 2014).…”

Effect of Deposit Mobilization on the Financial Sustainability of Rural Saving and Credit Cooperatives: Evidence from Ethiopia

“…The provision of financial services to the poor is based on the assumption that MFIs exist on a going concern principle to solve social problems such as poverty, unemployment, and low living standards. Being financially sustainable does not limit outreach to the poor; rather, it advances outreach [14], since the poor need to have access to financial service on a long-term basis rather than just short-term financial support [15]. Financial sustainability is necessary to reach significant numbers of poor people on a permanent basis.…”

Modeling Sustainability Model of Islamic Microfinance Institutions

“…Increasing the number of members and financing funds has a positive effect on BMT profitability (Bayai & Ikhide, 2016). However, on the other hand, a growth in financing also has the potential to raise the financing risk (non-performing financing) if it is not managed properly.…”

“…Based on previous research, there are various aspects involved in achieving IMFI sustainability. These include financial, social and spiritual intermediation (Wediawati, Effendi, Herwany, & Masyita, 2018), the implementation of good governance to maintain the financial sustainability of IMFIs and minimise the various risks that exist (Kassim, Hassan, & Kassim, 2018), organisational and social performance (Bouljelbene & Fersi, 2016), a solid overall performance in order to sustain the institution financially and operationally as well as ensure progress and growth (Ascarya, 2014), the financing structure in place (Bayai & Ikhide, 2016), outreach to the poor (Kipesha & Zhang, 2013), greater capital intensity and a higher number of employees (Mia, Nasrin, & Cheng, 2016), monitoring cost, regulation and supervision (Nabi & Zouari, 2013), social capital and spiritual wellbeing (Rahman, Al Smady, & Kazemian, 2015), and service quality (Nurfadilah, Samidi, & Subagja, 2018).…”