The trade-off between profitability and outreach in microfinance

Caserta, Maurizio; Monteleone, Salvatore; Reito, Francesco

doi:10.1016/j.econmod.2018.01.003

Cited by 20 publications

(14 citation statements)

References 27 publications

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“…In order to cope with changes and stay competitive, organizations have to be concerned about their sustainability. It is for this reason that many microfinance institutions (MFIs) have increased their attention towards financial sustainability in recent years [2]. Since microfinance organizations channel funds from lenders to borrowers, they play a fundamental role in economic growth.…”

Section: Introductionmentioning

confidence: 99%

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

Duguma

Han

2018

Sustainability

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Increasing institutional capital through deposit mobilization keeps the cost of capital low, thus leading to financial sustainability. However, little is known about how deposit mobilization affects financial sustainability. Using balanced panel data of 166 rural savings and credit cooperatives (RUSACCOs) from Ethiopia over the period of 2014-2016, we investigated the effect of deposit mobilization on financial sustainability. The results of the panel regression estimates showed that, among the deposits mobilization variables, the deposit to loan ratio, deposit to total asset ratio, the volume of deposits, and demand deposit ratio had a significant direct impact on financial sustainability. The fixed effect regression result for interest rate spread showed that an inverse relationship existed between the interest rate spread and financial sustainability. Furthermore, according to our robust fixed effect regression results, among the control variables, the age of the institution and inflation rate affects financial sustainability. Contrary to our expectations, the number of members and the percentage of woman members were not significant. This may be attributed to the fact that some members were inactive for a long period. We suggest that RUSACCOs should focus on deposit mobilization specifically on demand deposits and keep the interest rate spread narrower to ensure their sustainability.

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Section: Introductionmentioning

confidence: 99%

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

Duguma

Han

2018

Sustainability

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“…Zegarra and Wilson [37] found that increases in the size of MFIs can effectively promote their growth. In addition, there are many other factors, such as institution [38], capital structure [39], choice of loan methods [40], age [41], cost [42], efficiency [24], financial inclusion [43], and information technology [23].…”

Section: The Sustainability Evaluation Of Mfismentioning

confidence: 99%

Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study

Liu

2019

Sustainability

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Microfinance institutions (MFIs) have attracted great attention, due to their significant role in poverty reduction. Given the features of MFIs, this paper proposes a novel hybrid model of soft set theory, and an improved order preference by similarity to ideal solution (HMSIT) to evaluate the sustainability of MFIs, considering accounting ratios, corporate governance factors, and macro-environmental factors, from a cross-country perspective. This setting enables the examination of the role of macro-environmental factors in the sustainability of MFIs. For this purpose, soft set theory is adopted to select optimal criteria. An improved order preference by similarity to ideal solution method, in which the weight of each criterion is determined by soft set theory, is proposed to rank the sustainability of MFIs. This algorithm enables HMSIT to make full use of various types of information. The case study uses cross-country samples. Results indicate that macro-environmental factors are significant in evaluating the sustainability of MFIs from a cross-country perspective. Particularly, they can play a key role in distinguishing MFIs with low sustainability. The results also indicate that HMSIT has strong robustness. Ranked results, produced from the proposed HMSIT are reliable enough to provide some managerial suggestions for MFIs and help stakeholders make decisions.

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“…However, these dual missions are paradoxical in nature since earning a profit for MFIs will inherently impact negatively the degree of the help provided to the poor by MFIs. Therefore, not just the three models above, almost all MFIs are experiencing the struggle between the two inherently paradoxical missions of maintaining financial viability and providing sustainable social services (Caserta et al, 2018;Fouillet & Augsburg, 2010).…”

Section: A Critical Analysis Of the Three Modelsmentioning

confidence: 99%

“…Despite an emerging body of researches addressing microfinance crisis from many different perspectives, there is still a considerable theoretical gap in the microfinance literature regarding the fundamental reason of the crisis-the paradoxical nature of the dual missions of MFIs (Caserta, Monteleone, & Reito, 2018;Okoye, Okoye, Siwale, & Siwale, 2017). Researchers agree that MFIs have dual missions and many MFIs had abandoned their original social mission of poverty alleviation and excessively focused on financial performance (Mia & Lee, 2017;Xu, Copestake, & Peng, 2016).…”

Section: Introductionmentioning

confidence: 99%

Balancing Paradoxical Missions: How Does Microfinance Rebuild a Sustainable Path in Poverty Alleviation?

Wang

Ran

2019

Sage Open

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As an effective means in fighting poverty, microfinance experienced an unprecedented growth in many emerging economies followed by stagnation and deep crisis, due to an inherent paradox in the fundamental missions of microfinance industry: serving the poor and making profits to maintain institutional sustainability. This article explored sustainable mechanisms in balancing the paradoxical missions of microfinance institutions in the post-crisis era through an in-depth case study on RSL, a microfinance institution in China. The managerial principles and framework of RSL revealed in this article could guide indigenous microfinance companies to deal with the paradoxical nature of their missions and build a sustainable path in poverty alleviation.

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The trade-off between profitability and outreach in microfinance

Cited by 20 publications

References 27 publications

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

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

Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study

Balancing Paradoxical Missions: How Does Microfinance Rebuild a Sustainable Path in Poverty Alleviation?

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