Depth of outreach and financial sustainability of microfinance institutions

Abstract

The primary justification for subsidizing Microfinance Institutions (MFIs) is their enhancement of social welfare by extending credit to the poor households. Therefore, recent emphasis on their financial self-sufficiency has created concern, that this may adversely affect the mission of social outreach. Utilizing data from 702 MFIs operating in 83 countries, this study shows empirical evidence of a positive complementary relationship between financial sustainability and depth of outreach.

Keywords:

• microfinance institution
• depth of outreach
• financial sustainability

JEL Classification::

• G29
• O12
• O16

Acknowledgements

Part of the work for this study was completed while the author was a visiting fellow at the Institute of Microfinance, Dhaka, Bangladesh.

Notes

¹ The author had an extended opportunity to conduct several informal interviews with field workers in Bangladesh.

² Two excellent examples of such MFIs are Bank Rakyat of Indonesia and BancoSol of Bolivia.

³ Reported verbatim from the Mix Market glossary.