Academic literature on the topic 'Sustainability of microfinance'

Inspired by the 1999 Program of Action defined by the United Nations, which describes eight pragmatic areas for a Culture of Peace. My proposal will work on the section 'Sustainable economic and social development' evaluating microfinance and the organizations that manage them, as a tool to achieve this objective. Immersed in a global context and under the prism of sustainability, the performance analysis of the organizations activity can not be done only from its economic exercise, but it is necessary to measure its impact under a wider range of criteria (Fernández et al., 2013). The main objective of this thesis will be to contribute to the improvement of research in this sector, presenting a global vision of the behaviour of MFIs in terms of sustainable performance, based on a model that articulates the financial, environmental, social and governance dimensions of integrated form.<br>Inspirado en el Programa de Acción de 1999 definido por Naciones Unidas en el que se describen ocho ámbitos pragmáticos para una Cultura de Paz. Mi propuesta trabajará sobre el apartado ‘Desarrollo económico y social sostenible’ evaluando las microfinanzas y las organizaciones que las gestionan, como herramienta para la consecución de este objetivo. Inmersos en un contexto global y bajo el prisma de la sostenibilidad, el análisis de desempeño de la actividad de las organizaciones no puede realizarse únicamente desde su ejercicio económico, sino que es preciso medir su impacto bajo una mayor amplitud de criterios (Fernández et al., 2013). El principal objetivo de esta tesis será contribuir a la mejora de la investigación de este sector, presentando una visión global del comportamiento de las IMFs en términos de desempeño sostenible, basado en un modelo que articule las dimensiones financiera, ambiental, social y de gobernanza de forma integrada.

Thesis (MDF)--University of Stellenbosch, 2011.<br>In the microfinance discourse, sustainability can relate to organisational, managerial and financial aspects. However, what is in vogue in mainstream analysis is the financial sustainability of MFIs throughout the world, especially in Africa, Asia and Latin America. What has attracted controversial debate on the self financial viability of MFIs is the extent they have maintained the balance between achieving substantial levels of profitability (through employing the institutionalist approach), and being agents of poverty-alleviation (through the welfarist approach). Analysing the mixed fortunes of the five MFIs in Mozambique between 2005 and 2009, this study explores the scope and patterns of outreach programmes as an essay in service-delivery by the MFIs, the repayment capacity of the different stripes of clients, the cost-control regime adopted by the MFIs and the ultimate variegated levels of success realised, and the challenges faced by the MFIs in different provinces.

Microfinance targets the poor and very poor, both in urban and rural areas. It has become a common method of poverty alleviation in many developing countries. Several microfinance institutions have adopted a social mission to eradicate poverty by providing credit to the poor. In the past, microfinance organizations used to focus on farmers in rural areas. Modern microfinance programs are focused on the population that is largely neglected by the formal financial sector, specifically women. Due to the perceived risk in this type of uncollateralized lending, private equity markets are not keen on financing microfinance institutions. Furthermore, microfinance institutions are seen as socially motivated as opposed to being financially motivated. For that reason, their profitability and sustainability has come under question in the last decade. Two approaches to the issue of sustainability exist. The dominant institutionist approach argues that microfinance institutions should focus on being sustainable as this will improve their chances of alleviating poverty. The welfarist approach disagrees with this view by arguing that focusing on sustainability will result in the neglect of the poorest of the poor. This study analyses the sustainability of microfinance in South Africa by using a case study research approach. The study explores the challenges to sustainability in South Africa. The results of the study indicate that the microfinance institutions are not profitable nor self- sufficient. The most notable challenge to this sustainability is the high personnel costs. South African MFIs experience higher operating costs than their African counterparts. The study also indicates that the more financially sound microfinance institutions have a lower level of depth outreach than the more subsidy dependent institutions.

Thesis (MDF)--Stellenbosch University, 2015.<br>ENGLISH ABSTRACT: The approach to offering financial services to the poor has evolved over the past decades. The microfinance schism between the two paradigms, institutionist and welfarist, has yet to be narrowed by evidence of greater success of the one over the other. The drive for commercialisation of microfinance institutions has spurred many crises across the globe and the validity of the argument that commercial microfinance is more sustainable has come under scrutiny. This research report dissects the sustainability of African Bank and Capitec, two commercial microfinance institutions. Accounting ratios are applied to the audited financial data of both microfinance institutions to measure their sustainability from 2007 up to their most recent audited results. The research has found that both microfinance institutions experienced rapid growth since 2007, primarily driven by larger average loan sizes over longer terms. The research shows that Capitec has more diverse sources of revenue and depends less on its loan portfolio to generate income than African Bank. It also shows that Capitec has a more conservative approach with regard to provisioning for loans, and is consequently better prepared for loan write-offs than African Bank. Overall, Capitec is found to be more sustainable in each period measured.

Microfinance is a relatively young and somewhat ambiguous concept. The phenomenon has, however, proven to contribute to making the lives better for many poor people, thus the interest for the industry has grown substantially. The increased attention has stimulated the movement towards more financially sustainable organizations. Along with this transformation, concerns regarding how it affects the poor have been raised. This study aims to map the key characteristics of financially sustainable microfinance institutions (MFIs) and what features that separates them from their non-sustainable counterparts. By analyzing data from 1109 MFIs, some significant differences between sustainable and non-sustainable organizations have been found. The study shows that for-profit MFIs are self-sufficient to a greater extent than the non-sufficient ones, which might be caused by the pressure to deliver value to shareholders. Furthermore, there are indications that self-sufficient MFIs are more efficient, which can be assumed to be caused by technological advantages, or different lending methods. The findings on outreach are somewhat contradictory; sustainable MFIs are reaching more clients on average, which discards a mission drift. On the other hand, self-sufficient MFIs have larger average loan sizes and less female borrowers, two indications that a mission drift actual exists. Self-sufficient MFIs have also proven to have lower loan loss rates and lower yields on loan portfolio. Positive findings, as they indicate that the MFIs have sound loan portfolios and that they have managed to become self-sustainable not by exploiting the poor, but by reducing costs and increasing efficiency. Financial sustainability can therefore be assumed to be achieved without forsaking the poor, if the social aims of the organizations are consistent with the financial objectives.

Thesis (PhD (Economics)--University of Stellenbosch, 2007.<br>Using an econometric approach on panel data collected from 53 microfinance institutions (MFIs) in Uganda over a period of six years (annual), this study has identified the determinants of sustainability and outreach of MFIs. In addition, the study has also used survey data from 31 non-Bank of Uganda (BOU) regulated MFIs or Tier 4 MFIs, four BOU-regulated non-bank MFIs, 12 commercial banks and the BOU itself to assess the effects of financial regulation of MFIs on their sustainability and outreach. The results indicate that sustainability is positively and significantly driven by real effective lending rates and age of an MFI, and negatively by the ratio of gross outstanding loan portfolio to total assets, the ratio of average loan size to the national per capita income, the unit cost of loans disbursed, and a group-based delivery mechanism compared to an individual-based delivery mechanism. Outreach is positively and significantly driven by an MFI being a savings and credit co-operative (SACCO) compared to being a private company, effectiveness of governance, the age of an MFI, the ratio of gross outstanding loan portfolio to total assets, and the ratio of salary/wage paid to staff to the national per capita income, and negatively by the ratio of average loan size to the national per capita income and the unit cost of loans disbursed. In the short run, financial regulation negatively influences the outreach of MFIs, but positively affects their sustainability. In the long term, financial regulation positively influences both the sustainability and the outreach of MFIs. The results suggest a number of policy options. First, the MFIs should focus on the real effective lending rate, given its significance in their sustainability. Second, for a real effective lending rate to be relatively low, the rate of inflation should be low. This calls for prudent monetary policy management by the government. Thirdly, the cost of doing business should be kept low. This calls for prudence in business management by the MFIs and creating a cost-effective business environment by the government. While the results are tentative, in order to expand outreach more SACCOs should be established and the MFIs should commit more funds to lending purposes compared to other investments. Finally, before enacting financial legislation, it is important that its benefits and costs are adequately assessed to ensure that the benefits outweigh the costs both in the short and long term.

The thesis empirically examined the implications of microfinance scaling up or sustainability on outreach in Nigeria. Basically, two methodologies were used namely, panel data econometric and survey methods. The panel dataset of 752 microfinance banks in Nigeria was used during the period 2011-2014, while the survey was conducted on some selected microfinance banks in Federal Capital Territory, Abuja in 2014. The findings from the thesis showed that, at the national level, yield, labour cost, orientation, efficiency, gender and size of loans are the major drivers of microfinance banks‟ sustainability in Nigeria. While at the state level, microfinance banks sustainability is driven by orientation and loan size. Findings also showed that sustainable MFBs tend to be more focused on the poor clients. The thesis showed that lending to female clients improves repayment rate of MFBs in Nigeria. Corroborating the regression result, the survey findings also suggest that lending to women had improved and enhanced repayment rate. In view of these findings, the thesis recommends that sustainability and outreach are not necessarily incompatible. However in pursuing sustainability greater attention should be on female clients, as greater lending to women would improve the repayment rate of MFBs and further engendered the industry sustainability.

An enduring problem facing microfinance institutions is how to attain financial sustainability. Several studies have been conducted to determine the factors affecting financial sustainability of microfinance institutions using large and well developed MFIs in various countries. However, no such study has been conducted in rural Tanzania where majority of MFIs are small, most of which are member-based (cooperatives). Consequently, the factors affecting their financial sustainability are not known. This study, therefore, was set to bridge this knowledge gap. This study followed a quantitative research approach using panel data regression as the main data analysis technique. The study was based on four years primary and secondary data obtained from 98 sampled rural MFIs in Tanzania. We found that microfinance capital structure, interest rates charged, differences in lending type, cost per borrower, product type, MFI size, number of borrowers, yield on gross loan portfolio, level of portfolio at risk, liquidity level, staff productivity, and the operating efficiency affect the financial sustainability of rural microfinance institutions in Tanzania. The study makes the following key contributions to knowledge in addition to determining factors affecting financial sustainability of rural microfinance institutions in Tanzania: First, the study reveals that there exists simultaneous causality relationship between financial sustainability and breadth of outreach. When this relationship is not considered in determining factors affecting financial sustainability there may be inconsistent evidence on the existence of mission drift. Second, it unveils the trade-off between financial sustainability and breadth of outreach with regards to the minimum loan size when group lending is used. That is, larger loan size, while improves profitability, reduces the breadth of outreach. Third, the study provides empirical evidence that the impact of a particular lending type on microfinance institution‟s profitability will depend on the term to maturity and number of instalments reflected in its lending terms. Fourth, consistent with the institutionists‟ view, the study provides empirical evidence that financial sustainability of microfinance institutions improves their breadth of outreach. Lastly, the study documents the applicability and limitations of previous studies to rural microfinance institutions in Tanzania.