Financial sustainability of microfinance institutions (MFIs): An empirical analysis

Paolo Iezza

Student thesis: Master thesis

Abstract

This study examines the determinants of financial self-sufficiency among 687 microfinance institutions (MFIs) in 63 countries worldwide. By adopting an empirical approach the paper attempts to answer one question: which are the factors that influence the sustainability of a microfinance institution (MFI)? During the study the notion of sustainability is carefully analysed and the concept of financial sustainability is used to consider the possibilities of an institution to be self-sufficient in the long term without the help of grants and donations. Results find that there are several variables which are statistically significant and together they influence the long term financial self-sufficiency of an institution. The capital structure is found to be an important determinant of the institution success and sustainability together with the positive influence of the collection of deposits from clients. Moreover macroeconomic variables such as inflation and lending rate are also found to have an effect on the MFI selfsufficiency. Other factors affecting MFI sustainability are a low portfolio at risk, a low percentage of non-earning liquid assets and the yield on gross portfolio suggesting that high interest rates on loans contribute to the institution sustainability. Geographically speaking, South East Asian MFIs result to perform significantly better than other institutions located and operating in other parts of the world.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2010
Number of pages105