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

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Abstract

The financial sustainability of microfinance institutions (MFIs) is crucial for the continual existence of the microfinance industry. As a result, emphasis has been placed on the financial sustainability of MFIs over the past few years. However, with the primary goal of the industry being the attainment of social outreach, the emphasis on financial sustainability has raised concerns about a potential adverse effect on outreach. Using data on 1595 MFIs in 109 countries, we examine if there is a trade-off between financial sustainability and outreach. The evidence shows that there is a trade-off between sustainability and outreach depth, but complementarity between sustainability and outreach breadth.

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Notes

  1. Outreach breadth captures the scope of MFI operations and is often measured by the number of clients. Outreach depth, on the other hand, refers to the ‘quality’ of outreach, and thus captures outreach to the poorest in society (Schreiner 2002). Further exposition on both outreach aspects is provided in Sect. 3.

  2. See discussions in Sect. 2.

  3. MIX Market is a not-for-profit organization that promotes information exchange within the microfinance industry.

  4. Data for country-level variables are retrieved from the World Bank’s database.

  5. See Dhrymes (1973) for a proof of 3SLS’s efficiency relative to the 2SLS.

  6. Table 4 in the appendix presents results for robustness exercises where we divide our sample into low and high disclosure MFIs to ensure that these sub-samples do not present systematically different results. We find that the nature of the relationship between outreach and financial sustainability is not altered by the sample type.

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  1. School of Economics, Finance and Marketing, RMIT University, Melbourne, VIC, 3000, Australia

    Sefa Awaworyi Churchill

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Appendix

Appendix

See Table 4.

Table 4 Sustainability and outreach (variations by MFI disclosure ratings)
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Awaworyi Churchill, S. Microfinance financial sustainability and outreach: is there a trade-off?. Empir Econ 59, 1329–1350 (2020). https://doi.org/10.1007/s00181-019-01709-1

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