The financial systems approach emphasizes the importance of financially sustainable microfinance programs. To the extent that microfinance institutions become financially viable, self sustaining, and integral to the communities in which they operate, they have the potential to attract more resources and expand services to clients. Linear regression was also carried out to establish into determinants of financial sustainability of microfinance institutions in kenya. Pdf assessing the performance and sustainability of. Over the years, the industry has experienced tremendous growth, with.
The sustainability of microfinance institutions as described above, however, cannot be achieved if the institutions do not meet th e needs of the people that they are designed to help s now 1999. Factors influencing sustainability of microfinance. Most poor people are not able to access financial services because of the lack of strong retail financial intermediaries. This document presents a framework for internal risk management systems and processes of microfinance institutions. In microfinance handbook, world bank, sustainable banking with the poor, 1997 available from the world bank bookstore. This trend toward commercialization or, more specifically. This study investigates the financial sustainability and outreach of. The implications of financial sustainability in the microfinance. Microfinance institutions tend to rely on donations and subsidies to achieve their social objective of outreach to the poor. To get a meaningful picture, we have to weight by number of borrowers or portfolio size.
Furthermore if the question is how sustainable is the microfinance industry, we shouldnt treat a tiny mfi with 2,000 customers the same as we would a huge one with 2,000,000. Achieving sustainability while delivering on the social im. Principles of microfinance updated sep 06 page 1 of 4 world education australia principles of sustainable microfinance microfinance is the provision of financial services to the poor. The role of microfinance institutions george kwadwo anane university of energy and natural resources, sunyanighana patrick brandful cobbinah school of environmental sciences, institute for land, water and society, charles sturt university, alburywodonga, australia.
Furthermore, with the growing emphasis on sustainability, anecdotal evidence suggests that focussing on sustainability adversely affects the social mission of mfis, especially depth of outreach. Financial sustainability and microfinance institutions. You will be redirected to the full text document in the repository in a few seconds, if not click here. This presents an empirical gap, which necessitates an investigation on the factors influencing financial sustainability of micro finance institutions in kenya. Microfinance is the provision that provides access to various financial services such as credit,savings, micro insurance, remittances, leasing to lowincome clients including consumers and the. Financial sustainability and microfinance institutions from an.
Pdf the aim of this paper is to clarify the problems of microfinance and the sustainability of microfinance institutions mfi in financial crisis. This means that sustainability of a microfinance institution itself is a measure of how effectively it operates and serves the poorat the same time. Microfinance institutions could play an important role in meeting the financial needs of households and microentreprises. A practical approach to credit risk management in the pacific.
This problem is compounded by the absence of a dedicated legislation on working and management of microfinance institutions. Minimum indicators that donors and investors should track. Data were collected from 25 microfinance institutions of their annual reports from 20082015. The study therefore concludes that majority of microfinance institutions in kenya are not financially sustainable if measured by the return on assets or return on equity.
At global level, cull et al 2007 found that the microfinance industry is financially and operationally sustainable with. The road to sustainability is quite a tough and challenging. Pdf sustainability of microfinance institutions in. However, researches in the industry have generated debates on. Core principles for microfinance the poor needs access to appropriate financial services the poor has the capability to repay loans, pay the real cost of loans and generate savings microfinance is an effective tool for poverty alleviation microfinance institutions must aim to provide financial services to an. Achieving sustainability while delivering on the social impact. In the 1990s, the issue of financial sustainability of microfinance institutions gave rise to an important debate between the financial systems approach and the poverty lending approach robinson, 2001.
Whilst many studies have focused on the challenges faced by microfinance institutions in africa and the world. The commercialization of microfinance in latin america. Determinants of financial sustainability of microfinance institutions in east africa. Microfinance institutions mfis increasingly insist on financial sustainability as a core element of their business strategy, since it has been an alarming challenge across many mfis globally. Microfinance is the provision of financial services for the poor services include savings, transfers, insurance and credit. In the 1960s and 1970s, the state was at the centre of action with support from development banks and agricultural credit projects. Sustainability of microfinance institutions in financial crisis. The sustainability and outreach of microfinance institutions. The study concludes that sustainability of mfis is a function of many factors that are related and interconnected i.
The paper examines the effect of regulation on microfinance institutions mfis sustainability and outreach in sub. Above and beyond the microcredit facet, microfinance could. Basic financial management and ratio analysis for mfis toolkit. This study investigates the financial sustainability and outreach of 32 mfis in india in terms of interest rate and default rate. Measuring performance of microfinance institutions. The establishment of sustainable mfi that reach a large number of rural and urban poor who are not served by the conventional financial institutions, such as the commercial banks, has been a prime component of the new development strategy of ethiopia. Pdf on sep 1, 2011, saundarjya borbora and others published microfinance.
Healthy financial and operating performance of microfinance institutions is very. Key success drivers for microfinance institutions in. Financial sustainability, outreach and impact of microfinance institutions is there a tradeoff. It is also concluded that the most significant factor that influenced sustainability of microfinance institutions in kenya is. Sustainability and governance of microfinance institutions. On average, sustainable mfis are much larger than the unsustainable ones. Pdf role of microfinance institutions in the development. While recent history offers some successful examples, there are nonetheless many others that are not so successful, and are indeed failures. A risk management framework for microfinance institutions. Request pdf interest rate caps and sustainability of microfinance institutions in zambia this paper examined the nonlinear relationship between interest rate and operational sustainability. A microfinance markets could loose attractiveness in terms of investment opportunities. Request pdf microfinance institutions fostering sustainable development the microfinance sector is considered an important contributor to the expansion of formal financial systems. Role of microfinance institutions in rural development. Pdf sustainability of microfinance institutions in financial crisis.
Basic financial management and ratio analysis for mfis page iii microsave marketled solutions for financial services. A credit policy is the blue print used by microfinance or rather a lending institution in making its decision to extend credit to a customer. Interest rate caps and sustainability of microfinance. Microfinance institutions mfis work to increase social sustainability by providing more services to particular clientele, while maintaining the financial and operational sustainability of the institutions. For microfinance institutions, sustainability is meeting goals now and in the long term 31. This could happen in a period when microfinance has been spotted among sectors attracting investors2.
Microfinance institutions and other issues affecting their operations especially in kenya. Similarly, the limited branch network leads to low sustainability. The efficiency and sustainability of microfinance institutions in south africa creator thela, thandazile alvinah subject ngo funding, sustainable business, microfinance institutions, non. In particular, the contributions provide answers to the following two main questions. Proactive risk management is essential to the longterm sustainability of microfinance institutions mfis, but many microfinance stakeholders are unaware of the various components of a comprehensive risk management regimen.
Outreach and sustainability of microfinance institutions. Despite the success of microfinance institutions, only about 2% of worlds roughly 500 million small entrepreneurs is. The multiple regression technique was used to measure financial sustainability with the given determinants. Pdf depth of outreach and financial sustainability of. However, in the following decade this conventional approach to finance was substituted by a. Microfinance institutions and poverty reduction university of. The study used spss version 20 to conduct analysis. Regulation, outreach, and sustainability of microfinance.
Performance indicators for microfinance institutions. Using unbalanced panel data from 2002 to 2012 for 30 countries and a multilevel estimation technique, we find that regulation helps improves the sustainability and breadth of outreach but not the depth. At least in india, there does not seem to be any working model of analyzing the financial performance and thereby sustainability of microfinance institutions. This involves small amounts hence micro of savings, credit, insurance and money transfer services. The purpose of this paper is to identify those factors that have significant impact on financial sustainability of microfinance. Objectives of the study the general objective of the study was to. Kipesha and zhang 20 also limited it dimension to measure sustainability to operational efficiency of mfis. Microfinance, since its formal discovery in the 1970s, has received global recommendation for its invaluable contribution towards poverty alleviation and financial inclusion. The focus of this paper is the commercialization of microfinance in latin america. These are institutions which are registered as nongovernment organizations performing financial functions of lending and taking deposits microfinance act 2003.
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