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The implications of financial sustainability in the microfinance industry

Microfinance is a relatively young and somewhat ambiguous concept. The phenomenon has, however, proven to contribute to making the lives better for many poor people, thus the interest for the industry has grown substantially. The increased attention has stimulated the movement towards more financially sustainable organizations. Along with this transformation, concerns regarding how it affects the poor have been raised. This study aims to map the key characteristics of financially sustainable microfinance institutions (MFIs) and what features that separates them from their non-sustainable counterparts. By analyzing data from 1109 MFIs, some significant differences between sustainable and non-sustainable organizations have been found. The study shows that for-profit MFIs are self-sufficient to a greater extent than the non-sufficient ones, which might be caused by the pressure to deliver value to shareholders. Furthermore, there are indications that self-sufficient MFIs are more efficient, which can be assumed to be caused by technological advantages, or different lending methods. The findings on outreach are somewhat contradictory; sustainable MFIs are reaching more clients on average, which discards a mission drift. On the other hand, self-sufficient MFIs have larger average loan sizes and less female borrowers, two indications that a mission drift actual exists. Self-sufficient MFIs have also proven to have lower loan loss rates and lower yields on loan portfolio. Positive findings, as they indicate that the MFIs have sound loan portfolios and that they have managed to become self-sustainable not by exploiting the poor, but by reducing costs and increasing efficiency. Financial sustainability can therefore be assumed to be achieved without forsaking the poor, if the social aims of the organizations are consistent with the financial objectives.

Identiferoai:union.ndltd.org:UPSALLA1/oai:DiVA.org:kth-91363
Date January 2011
CreatorsEk, Sara
PublisherKTH, Industriell ekonomi och organisation (Inst.)
Source SetsDiVA Archive at Upsalla University
LanguageEnglish
Detected LanguageEnglish
TypeStudent thesis, info:eu-repo/semantics/bachelorThesis, text
Formatapplication/pdf
Rightsinfo:eu-repo/semantics/openAccess
RelationExamensarbete INDEK ; 2011:112

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