Study on Outreach and Sustainability Relation of Microfinance Institutions

This paper tests the strength of association between
variables that determines the outreach (level of reach to the
poor) of Microfinance Institutions (MFIs) and financial
performance indicators. That is: Is there a trade-off between
reaching the poor and being sustainable? Using data from
the Microfinance Information Exchange website, the paper
employed panel data regressions to investigate the trade-off.
The evidence collected from 70 MFIs and 135 observations
from The Economic Community of West African States
(ECOWAS) for a period of 4 years (2009-2012) found
evidence in support of the trade-off theory. The fact that
Banks as compared to the Solidarity lenders had higher
Loan/GNP is compelling evidence of a trade-off, as Banks
traditionally employ sustainable models. Furthermore,
increasing interest rates was found to be associated with
improved sustainability. Therefore, the proliferation of For-
Profit Banks in the microfinance landscape over the years is
a reason to worry about meeting “The Microfinance
promise”. That is helping in poverty alleviation.

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