Microfinance Financial and Social Performance

Microfinance Institutions, 2014

MFIs are measured according to two dimensions. One is their outreach to poor people, that is, their ability to provide poor families access to financial services. This is the MFIs' social mission. The other dimension is their financial sustainability, that is, their ability to pay their employees, lenders, and other suppliers, in short, their ability to produce a profit from their operations. We set out the main microfinance measures and confirm earlier findings that profitability is rather weak in microfinance, and that operational costs constitute a large part of the total costs. We argue that researchers should put more efforts into identifying the MFI's cost drivers because social outreach is related to high costs and thus difficult to upheld as competition in the industry hardens.

European Journal of Development Research, 2012

In the context of the multiple objectives of microfinance institutions (MFIs), this article tests two hypotheses. First, we argue that there is a trade-off between the social objectives of MFIs and their financial efficiency. Second, we assert complementarity between the external environment (credit information, property rights and financial development) and MFIs' social efficiency. Using balanced panel data of 164 MFIs for the period 2004-2008 from the Microfinance Information Exchange market, both parametric and non-parametric efficiency estimation techniques are employed. The study shows that efficient MFIs, in the context of financial performance, fail to reach out to poorer clients. However, efficient MFIs, in the context of social performance, reach out to poorer clients. We also observe that bureaucracies in property registration and a lack of credit information adversely affect the social efficiency of MFIs. In view of the foregoing, the effective role of external institutions and the removal of information barriers are important for reducing poverty through microfinance intervention.

2015

Microfinance is defined as the provision of financial services such as loans to low-income households, the poor and microenterprises. Over the past decade, microfinance institutions (MFIs) have sprang up rapidly in the Madina area of Greater Accra region of Ghana. It is therefore critical to examine the actual aims of these MFIs. The impulse of this research is to assess the development of microfinance in the Madina area. The study conveniently sampled twelve microfinance institutions. The instrument used for data collection was questionnaire. The managers of these MFIs were purposively selected to respond to the questionnaires. The study revealed that the development of microfinance in the past five years has been with the sole purpose of, providing income to low-income households who operate their own businesses. In addition, the success factors are provision of services which were appropriate and consistent with customers ’ situation and needs, character-based lending, frequent v...

SSRN Electronic Journal, 2000

Rating assessments of microfinance institutions are claimed to measure a combination of creditworthiness, trustworthiness and excellence in microfinance. Using a global dataset covering reports from 324 microfinance institutions, this study suggests that these ratings are mainly driven by size, profitability, and risk. The ratings do not seem to capture the double bottom-line objective of microfinance institutions, as our analyses are unable to prove any statistical relationship between microfinance ratings and the social objectives of these institutions. Moreover, the association between operational efficiency and microfinance ratings appears weak. Although there are some minor differences between the rating agencies, the overall results suggest that microfinance ratings convey information very similar to that communicated by traditional credit ratings.

International journal of Emerging Trends in Science and Technology, 2017

Abstract Since people with low incomes do not have access to financial institutions, and in most developing countries only public workers benefit from the services of public banks, the poor and private workers with low incomes cannot borrow from these public banks. Hence, microfinance institutions (MFIs) have become the answer to those who cannot benefit from the financial services of the public banks. The primary objective of this article is to present issues to concerned body to look on the problem which is the shifting goal of micro finance from financial sustainability to social sustainability.On my topic which is entitled the shifting goal of micro finance from social sustainability to financial sustainability, I have tried to summarize different literature and make an argument on the two contradicting ideas. Tracing the goal of microfinance I conclude that the microfinance objective has to be kept as to provide social and financial service for the poor and marginalized group. But the concern of scholars and the institution on financial sustainability of micro finance which should not be underestimated problem has to be solved. Unless otherwise the microfinance institution has to be merged with banks Shifting of the goal of microfinance from social sustainability to financial sustainability is the missing link. The scholars and the financial institutions against my idea have to answer the question of what is the reason for the existence of micro finance. Finally I recommend as strengthening the microfinance social service such as training and development on entrepreneurial skill, leader ship skill, marketing skill and others which in turn proof financial performance. Keywords: Microfinance, Social performance, financial performance, entrepreneurial development, financial institution, banks, microcredit, saving, micro insurance, loan

International Journal of Academic Research in Economics and Management Sciences, 2015

The microfinance institutions (MFIs) are the agencies that attract global concern due to their importance in ensuring financial inclusion as well as helping poor in addressing poverty. There are parts of specialised financial institutions. Therefore the aim of this paper is to implore the lingering challenges of MFIs and proposed way forward to address them. In order to attain the objectives, review of some related literature were embark upon. Among the findings of the study are the challenges that bedevilling MFIs. The challenges include low outreach, criteria used in granting micro credits, regulatory problems, inappropriate human resources, delay in loan repayment , high transaction cost, infrastructure etc. Lastly the paper has suggested way forward to address the challenges.

Promoting Microfinance

This paper investigates the relationship between the financial performance and social performance of microfinance institutions (MFIs) from 10 countries of the Middle East and North Africa (MENA) region. Two models with interacting variables are applied to an unbalanced panel of 67 MFIs, including 18 Islamic ones (IMFIs), over the period 2004-2015. It distinguishes SolebusinessIMFIs granting exclusively Islamic services from Window IMFIs that diversify their services (Islamic and conventional). It tests five assumptions about the controversial superiority of IMFIs over conventional MFIs (CMFIs), with respect to their financial performance and social performance. Results show that MFIs, whether Islamic or conventional, face a financial vs. social performance trade-off. Window IMFIs experience higher financial performance than Solebusiness IMFIs and CMFIs. However, the three assumptions regarding financial performance are unverified. Outreach of the Solebusiness IMFIs differs from that of Window IMFIs and CMFIs. Nevertheless, the two assumptions concerning social performance are also unverified. Hence, there is no evidence that IMFIs exceed CMFIs.

Microfinance is generally considered as a power tool for poverty alleviation. However, the development of microfinance leads to a concern about self-sufficiency of microfinance institutions (MFIs). MFIs are expected not only to serve the poor but also to become profitable; and therefore adapting more commercial practices. From the point of view, the commercialization trend of microfinance has raised a debate that whether the focuses on financial objectives go against the original goal of reducing poverty. Using cross-sectional data of Indian MFIs in 2010 collected from the MIX, this dissertation aims to explain determinants of MFIs' performance in terms of financial objectives and outreach to the poor. The paper also tries to address the trade-off between financial success outcomes and poverty reduction purposes. The study reveals that no evidences of this trade-off are found, indicating that it is possible to maintain greater outreach to the poor in a financially viable way.

International Journal of Banking, Accounting and Finance, 2016

In recent years, there has been a growing interest in microfinance institutions (MFIs). Some studies assess the financial condition of MFIs on the basis of individual criteria while a few others attempt to explain differences in profitability on the basis of firm-level attributes and country-level characteristics. However, there is no widely accepted measure for assessing the performance of MFIs. At the same time, these institutions face a challenge, as they have to provide financial services to the poor, and at the same time to cover their costs and grow. The present study employs a two stage analysis. In the first stage, I propose the use of the PROMETHEE II multicriteria method which is based on the outranking relations concept. This allows the evaluation of the overall performance of the MFIs using a set of, often conflicting, financial performance and social performance criteria. In the second stage of the analysis, I use regression analysis to explain differences in the overall performance of the MFIs on the basis of various country-specific characteristics such as macroeconomics, financial and institutional development. The results show that the size of the MFIs has a robust non-linear, inverted U-shaped impact on overall performance. Age and the status of non-governmental institution also appear to matter. As it concerns the country-level attributes, GDP growth has a robust positive impact on overall performance. Regional differences also appear to matter.

Mesurer la performance des institutions de microfinance (IMF) n'est pas une tâche aisée. Étudier la seule capacité financière d'une IMF est en effet insuffisant, puisque cela ne constitue qu'une facette de sa performance. De nombreuses IMF étant initialement créées dans l'objectif d'aider les plus pauvres, il est en fait nécessaire de tenir compte d'aspects sociaux. La performance des IMF est par conséquent multidimensionnelle. Ce papier illustre une approche moderne pour évaluer la performance des IMF. L'analyse factorielle est utilisée dans un premier temps afin de construire des indices de performance basés sur de multiples combinaisons de variables potentielles. Les variables de base sont ainsi combinées pour produire plusieurs facteurs contenant chacun une dimension différente de performance. Les scores factoriels assignés à chaque IMF peuvent ensuite être utilisés comme variables dépendantes d'un modèle à équations simultanées. Cette méthodologie nous permet de présenter de nouveaux résultats concernant les facteurs déterminant la performance des IMF.