Microfinance financial sustainability and outreach: is there a trade-off?

Churchill, Sefa Awaworyi

doi:10.1007/s00181-019-01709-1

Cited by 63 publications

(39 citation statements)

References 46 publications

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“…Overall, our findings lead to similar conclusions as those of Awaworyi Churchill (2020), which suggest the existence of a trade-off between financial sustainability and only the depth of outreach goal of MFIs. In other words, paying efficient wages to employees may enhance the breadth of outreach and financial sustainability of MFIs, but adversely impact the depth of outreach.…”

Section: Resultssupporting

confidence: 85%

Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence

Mia

Pellegrina

Cheng

et al. 2022

IIM Kozhikode Society & Management Review

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Enhanced productivity remains a crucial agenda for firms to attain cost and competitive advantages in the market. Hence, the main purpose of this study is to investigate the effects of efficiency wage (EW) on the productivity of microfinance institutions (MFIs) with respect to their dual objectives, namely, outreach (depth and breadth) and financial sustainability. Unbalanced panel data of 179 Indian MFIs were collected over the period 2010–2018 from the Microfinance Information Exchange (MIX) market platform (now obtainable from the World Bank catalogue). Under a static model setting (fixed effects model), the observed relationship between EW and MFI’s productivity is mixed. On the one hand, EW exhibits a strong and statistically significant positive relationship with the breadth of outreach, even after considering various control variables and alternative proxies of EW. On the other hand, EW shows no positive influence on the MFIs’ depth of outreach; rather, it results in a mission drift of MFIs, with the poorest of the poor being neglected (weak and insignificant for proxy of EW). Concerning the financial sustainability of MFIs, EW exhibits a positive and statistically significant effect, except for the profitability dimension when an alternative proxy of EW is used. A two-step system generalized method of moments (GMM) performed to limit endogeneity problems also validates most of our findings. The outcomes of this study could help MFIs’ managers in designing appropriate financial packages to enhance MFIs’ productivity and subsequently attain the dual objective of outreach and sustainability.

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Section: Resultssupporting

confidence: 85%

Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence

Mia

Pellegrina

Cheng

et al. 2022

IIM Kozhikode Society & Management Review

View full text Add to dashboard Cite

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“…OSS takes into account the financial expense, operating expense and impairment loss on loans, and measures the MFI's ability to cover these costs through its operating incomes. It is the most widely used indicator for measuring financial sustainability of microfinance institutions (Abdulai and Tewari, 2017; Awaworyi Churchill, 2019; Huq et al , 2017; Kar, 2011; Nurmakhanova et al , 2015; Quayes, 2015; Roy and Pati, 2019). MFI depth of outreach is proxied here by average loan size.…”

Section: Methodsmentioning

confidence: 99%

The role of national culture in the relationship between microfinance outreach and sustainability: a correlated random effects approach

Zainuddin

Mahi

Akter

et al. 2020

CCSM

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PurposeThis study investigates the role of national culture between outreach and sustainability of microfinance institutions (MFIs). Despite microfinance's deep embeddedness in cultural contexts, research on the influence of national culture on MFI performance is rather sparse. This paper seeks to fill this gap and, based on cross-country microfinance data, attempts to explain the outreach-sustainability relationship in reference to cultural factors.Design/methodology/approachAn unbalanced panel, consisting of 5,741 MFI-year observations of 1,232 MFIs from 43 countries in six regions, is drawn from the Microfinance Information Exchange (MIX) Market database. Two different econometric models are tested. Model 1 estimates the direct effect of outreach on sustainability, using a fixed-effects estimator. Model 2 examines the moderation effect of national culture on outreach-sustainability relationship, employing correlated random effects approach.FindingsThe results show that depth of outreach and financial sustainability of MFIs are negatively related, and the relationship is moderated by national culture. Power distance and uncertainty avoidance positively moderate the outreach-sustainability relationship, whereas individualism and masculinity negatively moderate the relationship.Originality/valueThe findings suggest that the national culture where MFIs are located plays an important contingent role in their performance and that the magnitude of the trade-off effect varies from culture to culture. The research thus provides further insight in the trade-off debate and contributes to literatures of both microfinance and cross-cultural management.

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“…Higher loan write‐off ratios (WRTOFFR) will eventually result in the lower financial performance of MFIs due to their inability to recover principal loans and associated interest rates (Schäfer & Fukasawa, 2011). Since the attainment of financial sustainability has become one of the core objectives of MFIs in recent years (Awaworyi Churchill, 2019b), management of MFIs may allegedly drop vulnerable clients that are unable to maintain the repayment schedule. Thus, it is expected that a higher WRTOFFR will eventually result in a higher BTR in a bid to maintain the financial sustainability of MFIs.…”

Section: Conceptual Framework and Literature Reviewmentioning

confidence: 99%

Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence

Mia

Banna

Noman

et al. 2021

Ann Public Coop Econ

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In the era of competitiveness, clients or borrowers remain an important asset for financial institutions, as they are the ultimate source of revenue. Although the departure of clients from one microfinance institution (MFI) to another is a common phenomenon, the manner in which organizational characteristics affect turnover is largely unknown in the context of the microfinance industry. Hence, by utilizing recent (2010–18) data on 235 MFIs from the global microfinance industry, this study investigates the factors affecting the borrower turnover rates (BTR) of MFIs by employing conventional panel regression techniques. To overcome endogeneity and ensure robust and dynamic results, the generalized method of moments (GMM) has also been used in this study. The findings reveal that the efficiency‐wage and financial self‐sufficiency of MFIs reduce BTR, while staff turnover rate, write‐off ratio and average loan size increase BTR. Our results remain robust even after controlling for several market and macro‐economic factors. The findings could be utilized to generate several policy implications to reduce borrowers’ turnover.

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Microfinance financial sustainability and outreach: is there a trade-off?

Cited by 63 publications

References 46 publications

Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence

Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence

The role of national culture in the relationship between microfinance outreach and sustainability: a correlated random effects approach

Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence

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