Microfinance institutions’ operational self-sufficiency in sub-Saharan Africa: empirical evidence

Abstract

The topic of financial sustainability in microfinance institutions has become more important as an increasing number of Microfinance Institutions (MFIs) seek operational self-sufficiency, which translates into financial sustainability. This study aims to identify factors that drive operational self-sufficiency in microfinance institutions. To accomplish this, 416 MFIs in sub-Saharan Africa are studied and several drivers for operational self-sufficiency are empirically analyzed. Results indicate that these drivers are return on assets, and the ratios total expenses/assets and financial revenues/assets. The results imply that MFIs should encourage cost-management measures. They also reveal that there may not be a significant tradeoff in self-sufficiency and outreach. These findings will enable microfinance institutions worldwide to sharpen their institutional capabilities to achieve operational self-sufficiency and also provide policymakers with more focused tools to assist industry development.

Brain drain in microfinance institutions: the role of gender and organizational factors

“…Besides, MFIs' staffs are most likely to be more committed due to the international exposures and reputation of their institutions. Our findings somewhat agree with that of Remer and Kattilakoski (2021) that donations help cover cost (including cost of employees) of many MFIs (usually nonprofit) and consequently enhance their operation and services to the poor. As highlighted earlier, when an MFI charges a relatively high interest rates for their loans, it makes it difficult for the employees to meet the targeted number of loans/clients (less people will be interested to borrow at a higher price) and loan recoveries.…”

“…Moreover, MFIs with history of proper management of donor funds for microfinance operation are considered superior among their peers in the industry. Sometimes, donations (if it carries no such restrictions) are used to cover employee expenses, provide training and fulfil other administrative costs for socially oriented MFIs, particularly for the newly established ones (Remer and Kattilakoski, 2021), which represent a form of financial security for employees. Hence, a negative association between DOND and STR is expected.…”

“…Another interesting finding presented in Table 7 is the negative effect of donations received by MFIs on employee's turnover, which is statistically significant for the non-profit MFIs and insignificant for their profit-oriented counterparts. This indicates that donors are inclined towards MFIs that are non-profit oriented (Remer and Kattilakoski, 2021), emphasize social progress and protect employee's welfare. Although GDI has a negative coefficient value across the models in Table 7, it is only statistically significant for profitoriented MFIs.…”

Linkages between social and financial performance: Evidence from Sub-Saharan Africa microfinance institutions

“…In SSA, microfinance institutions are expanding their operations faster, thus positioning them to be among the most productive in the world in terms of the number of savings and borrowers. Furthermore, microfinance institutions are currently being used in SSA as developmental tools to help people get out of poverty [ 2 ].…”

Gender heterogeneity and microfinance sustainability in Sub‐Saharan Africa

“…Microfinance institutions have emerged as a vital development finance institutions responsible for the enhancement of financial inclusion of the economically active but underprivileged populace in an economy (Adusei & Obeng, 2019; Chikalipah, 2017; Remer & Kattilakoski, 2021). The institution plays a significant role in the provision of microfinancial access to the poor through its product delivery, such as deposit mobilisation, access to credit, leasing and insurance services (Baklouti, 2013; Tchakout, 2021).…”