Investigating the Trade-Off between Sustainability and Outreach of Micro-finance Institutions

Document Type : Original Article

Authors

1 College of Management Arab Academy for Science &Technology Alexandria Egypt

2 Cardiff School of Management Cardiff Metropolitan University UK

Abstract

 
Microfinance is the provision of financial services to the poor and low income clients; who do not have access to formal financial institutions. Nowadays, countries’ main objective is to develop a microfinance industry in which sustainable financial services for lower market segments are integrated into the overall development of a broad, inclusive, and diverse financial sector. This study aims at investigating the relationship between MFI sustainability and outreach in order to reach a conclusion of whether a trade-off exists between both objectives or not. Sustainability is measured using OSS, while outreach is measured on two main aspects namely; depth and breadth utilizing three indicators which are average loan balance, percentage of female borrowers from total borrowers, and the number of active borrowers. Dataset consisting of 992 observations on 124 MFIs dispersed in 45 countries located in six regions was collected for the period 20042011 and is gathered from two main sources: the MIX Market database and the World Development Indicators (WDI) by The World Bank. Results found no evidence of a trade-off between MFI sustainability and outreach, i.e. the sustainability of an MFI does not have a significant effect on an MFI’s composition of new clients, nor the number of clients an MFI serves. This helps MFIs in achieving its ultimate social goal of serving the poor, while at the same time maintaining its sustainability and achieving profitability

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