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Trade-off between financial sustainability and outreach of microfinance institutions

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Abstract

Microfinance institutions (MFIs) offer banking services to poor customers who have no access to the traditional financial sector. However, recent developments in the microfinance industry have increased focus on financial sustainability of MFIs therefore shifting focus from their social mission (outreach). Previous studies examine the factors affecting both financial sustainability and outreach of MFIs in separate models without taking into account the possible link between them. On this basis we propose a comprehensive model which includes both ‘outreach’ and ‘financial sustainability’ as endogenous variables and allows for possible link between them. Our results show that focusing on financial sustainability does not necessarily hurt the depth and breadth of outreach.

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Notes

  1. See Angrist and Pischke (2009) for a full discussion of instrumental variables technique.

  2. See Angrist and Pischke (2009) for details.

  3. When there is no collinearity at all, the eigenvalues, condition indices and condition number will all equal one. As collinearity increases, eigenvalues will be both greater and smaller than 1 (eigenvalues close to zero indicate a multicollinearity problem), and the condition indices and the condition number will increase.

  4. For bivariate normal distribution of \( (x_{1} ,x_{2} )\sim BN(\mu_{1} ,\mu_{2} ,\varSigma ) \) conditional distribution of \( x_{1} \) given \( x_{2} \) is \( (x_{1} \left| {x_{2} = a} \right.)\sim N(\bar{\mu },\bar{\varSigma }^{2} ) \) with

    $$ \bar{\mu } = \mu_{1} + \rho \sigma_{1} \frac{{(a - \mu_{2} )}}{{\sigma_{2} }} $$
    $$ \bar{\varSigma } = \sigma_{1} \sqrt {1 - \rho^{2} }. $$

  5. See Cameron and Trivedi (2009) for details.

  6. Generally, an F-statistic over 10 is required to suggest instruments are sufficiently strong.See Murray (2006) for details.

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Author information

Authors and Affiliations

  1. KIMEP University, Almaty, Kazakhstan

    Mira Nurmakhanova

  2. EADA Business School, Barcelona, Spain

    Gavin Kretzschmar

  3. American Lebanese University, Beirut, Lebanon

    Hassouna Fedhila

Authors
  1. Mira Nurmakhanova
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  2. Gavin Kretzschmar
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  3. Hassouna Fedhila
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Corresponding author

Correspondence to Mira Nurmakhanova.

Appendices

Appendix A

See Tables 1, 2, and 3.

Appendix B

See Tables 4 and 5.

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Nurmakhanova, M., Kretzschmar, G. & Fedhila, H. Trade-off between financial sustainability and outreach of microfinance institutions. Eurasian Econ Rev 5, 231–250 (2015). https://doi.org/10.1007/s40822-015-0016-7

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  • DOI: https://doi.org/10.1007/s40822-015-0016-7

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