Trade-off between financial sustainability and outreach of microfinance institutions

Nurmakhanova, Mira; Kretzschmar, Gavin Lee; Fedhila, Hassouna

doi:10.1007/s40822-015-0016-7

Cited by 45 publications

(44 citation statements)

References 33 publications

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“…MFIs need to convert from credit-only NGOs into regulated MFIs in order to provide other financial services to their clients. Consistent with the previous findings, this conversion allows MFIs take on more debts, especially savings, as well as to offer a greater basket of products and services (Cull et al, 2007(Cull et al, , 2011Hermes et al, 2011;Zerai & Rani, 2012;Ngo et al, 2014;Nurmakhanova et al, 2015). Due to the causal relationship between sustainability and outreach, sustainable MFIs tend to serve the large majority of borrowers, since on average they are much larger than unsustainable ones.…”

Section: Modelssupporting

confidence: 70%

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Ngo¹

2015

IJEF

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There is a widespread belief that providing access to financial services (microfinance) or reaching the poor with microcredit are perfect solutions to establish a sustainable economy or to help kick-start a bottom-up recovery and social development animated by the poor themselves through self-employment and microenterprises. Microfinance has therefore become an important instrument for poverty alleviation and for improving the welfare of the poor in both developing and transition economies. Due to the difficulty of targeting the poor, who have a lack of collateral, microfinance institutions (MFIs) are called on to achieve a balance between social impact (poverty reduction) and positive financial performance. This paper assumes that the financial objectives of MFIs operate in opposition to each other and that a trade-off is inevitable. Unbalanced panel data of MFIs for the period 1995-2013 has been extracted from the MIX Market website. In order to solve the endogeneity problem, this paper employed the dynamic system GMM (generalized method of moments) of Blundell and Bond (1998) that is considered as the new methodology currently in use in the empirical investigation of the financial performance in banking and finance. This paper outlines some of the parameters that affect the nature of trade-offs and complementarities between social and financial objectives in microfinance performance, and provides empirical evidence from cross-country analysis. Sustainability has a positive link with outreach. MFIs tend to expand their outreach in order to achieve sustainability, based on the advantages of the economies of scale. However, a threshold which makes the trade-offs or complementarities between financial and social objectives reverse if it goes beyond a certain point is also observed.

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Section: Modelssupporting

confidence: 70%

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Ngo¹

2015

IJEF

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“…Nurmakhanova et al. () also observed a supportive relationship between outreach and financial sustainability. Since revenues are generated from the lending activities of the MFI, it is logical to magnify revenues by way of growing the loan portfolio.…”

Section: Resultsmentioning

confidence: 90%

FINANCING STRUCTURE AND FINANCIAL SUSTAINABILITY OF SELECTED SADC MICROFINANCE INSTITUTIONS (MFIs)

Bayai

Ikhide

2018

Ann Public Coop Econ

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This study analyses selected Southern Africa Development Community (SADC) Microfinance Institutions (MFIs) in delineating how commercialized financing structure relates to financial sustainability given the need to control poverty through financially sustainable MFIs. The study takes from a recent SADC microfinance survey which recommended financial rescue packages for ailing MFIs to proffer financial sustainability. This survey failed to specify the form of financing which supports financial sustainability in addition to the inconclusive and little evidence in this regard. We note that though the financing structure and the level of financial sustainability varies with countries, MFIs are generally financially unsustainable. A robust probit model framework affirms the role of financing structure on financial sustainability. Portfolio at risk, cost efficiency and costs linked to deposit attraction explain financial sustainability. We suggest the availing of more donations, upgrading risk management and improving cost efficiency to induce financial sustainability.

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“…Apart from that, several studies suggested that the MFIs' financial performance are determined by interest rate charged (Kar & Swain, 2014;Roberts, 2013), size of the MFI (Cull et al, 2007), maturity of the MFI (Kar, 2011), and legal status of the MFI (Meyer, 2015;Tchakoute-Tchuigoua, 2010). The country context variables, such as inflation rate and GDP growth rate are also important in the financial performance analysis of MFIs (Ahlin et al, 2011;Nurmakhanova et al, 2015). Janda and Turbat (2013) examined MFIs in Central Asia for the period 1998-2011 and concluded that the outreach to the female clients, governance and macroeconomic factors enhance the financial performance of MFIs.…”

Section: Literature Reviewmentioning

confidence: 99%

The Influence of Institutional Characteristics on Financial Performance of Microfinance Institutions in the OIC Countries

Ibrahim¹,

Ahmed²,

Minai³

2018

Economics &Amp; Sociology

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Microfinance institutions (MFIs) proved to be a powerful tool for financial inclusion through developing entrepreneurial activities in rural areas. MFIs provide small-scale loans to the poor who have no access to traditional banking and financial system. However, in the pursuit to meet their social obligation, MFIs need to be financially sustainable and this sustainability largely depends on the institution's characteristics. This study investigates the influence of MFIs' characteristics on their financial performance, using the panel dataset of 57 microfinance institutions from the member countries of the Organisation of Islamic Cooperation (OIC). The empirical results show that, as expected, the interest rate charged and the period of existence in the market have a significant positive relationship with the financial performance of MFIs. The results also indicate that credit union and cooperatives, non-bank financial institutions and non-governmental organisations outperformed their counterparts financially. Therefore, the study concludes that charging a high rate of interest may improve institutions' financial self-sufficiency; however, it is unable to secure MFIs' profit maximization strategy. Conversely, not-for-profit MFIs can ensure their financial viability while serving the poorest clients which is the prime goal of any microfinance program. Hence, MFIs can earn profits, but within limits, complying with their social promise at the same time.

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Trade-off between financial sustainability and outreach of microfinance institutions

Cited by 45 publications

References 33 publications

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

FINANCING STRUCTURE AND FINANCIAL SUSTAINABILITY OF SELECTED SADC MICROFINANCE INSTITUTIONS (MFIs)

The Influence of Institutional Characteristics on Financial Performance of Microfinance Institutions in the OIC Countries

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