Study on Outreach and Sustainability Relation of Microfinance Institutions

Momodou K. Dibba

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.

DOI : https://doi.org/10.21102/jbpr.2016.12.112.09