Abstract
Microfinance institutions (MFIs) are developed to provide financial services to poor people usually ignored by commercialized institutions. Their main purpose is to increase outreach both in terms of depth and breadth, by providing small loans and reaching maximum number of poor people. This study aims to study the factors that influence the outreach performance of MFIs in Pakistan. By using random effect regression, factors that influence the depth and breadth of outreach were determined. Return on asset and firm size effect both the depth and breadth of outreach, whereas, portfolio at risk greater than 30 days impact the breadth of outreach only. Additionally, operating expense ratio does not influence the outreach performance of MFI.
Highlights
Microfinance, besides a financial solution, is the major contributor for the alleviation of poverty and long-term economic growth (CGAP, 2004; Manos & Yaron, 2009), as long-term development can be achieved by financial inclusion of the poor
Institutionist approach sticks with financial sustainability of institutions and poverty alleviation simultaneously whereas, Welfarists approach emphasized on reaching poor clients by using subsidized funds
Where i refers to microfinance institutions; t refers to year, ALPB
Summary
Microfinance, besides a financial solution, is the major contributor for the alleviation of poverty and long-term economic growth (CGAP, 2004; Manos & Yaron, 2009), as long-term development can be achieved by financial inclusion of the poor Various associations can be microfinance provider, which include credit unions, financial intermediaries, banks and non-profit organizations. They are known as microfinance institutions (MFIs) (Muwamba, 2012; Olasupo et al, 2014). The second important goal for MFIs is to reach poor clients by achieving financial sustainability. Institutionist approach sticks with financial sustainability of institutions and poverty alleviation simultaneously whereas, Welfarists approach emphasized on reaching poor clients by using subsidized funds. Existing literature has emphasized mainly on the financial sustainability (Adongo & Stork, 2005; Rahman & Mazlan, 2014; Tehulu, 2013) and ignored the social aspect of outreach. An unbalanced panel data of 37 MFIs from Pakistan including 9 banks, 4 rural support programs, and 24 microfinance firms, for a period of 2011-2015 is used to determine the factors that influence the outreach performance of MFIs in Pakistan. The remaining paper follows the following pattern; literature review in section 2, variable selection in section 3, data and methodology in section 4, empirical results in section 5, conclusion in section 6 and references in the last section
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