The potential influence of donor funding on microfinance institutions

Jonas Sandal

Student thesis: Master thesis

Abstract

This thesis examines the potential influence effect of donor funding on the sustainability of microfinance institutions, and analyses the role of governments in the microfinance industry. The nature of this explorative study is qualitative, and expert interviews with three different stakeholders in the microfinance industry are applied. The theoretical framework employed is that of the Balanced Scorecard Methodology as proposed by Robert S. Kaplan and David P. Norton, and Agency Theory as presented by Kathleen Eisenhardt. The thesis suggests that donor funding can have positive effect on microfinance institutions in their start-up phase allowing them access to capital they otherwise would unable to obtain. However, in general terms donor funding can have a detrimental effect on microfinance institutions’ sustainability since it can create a dependency on subsidies. Additionally, it is argued that the external pressure from donors can have negative effects on the microfinance institutions. It is suggested that the microfinance institutions must look to improve other strategies and diversify their sources of income in order to ensure financial self-sufficiency. In this respect, the Balanced Scorecard framework is proposed as a mean to establish independence from subsidies.

EducationsMSc in International Business and Politics, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2011
Number of pages126