Drivers of Sustainability of Indian Microfinance Institutions

Abstract

Microfinance is the most preferred way of satisfying the essentials of poor which are generally not taken care of by formal financial institutions. It is the way to facilitate them to uphold self-employment through various financial services like provision of funds, insurance, credit etc. Microfinance institutions cater to the need of major section of society by providing access to funds and other financial services, which basically lack access to these services. To accomplish this moral objective microfinance institutions (MFIs) need to be profitable and sustainable. Thus most important question arises is: what factors drive the sustainability of MFIs. The aim of microfinance is to alleviate poverty with the help of increasing access to finance. For well-being of the poor, good sustainable performance of MFIs must be achieved. Therefore, the present study attempts to explore different factors which might affect sustainability of Indian MFIs. Panel regression analysis is used to identify the determinants of sustainability of Indian MFIs. Due to non-availability of data for most of the MFIs, five years (2009-2013) data for 46 MFIs shall constitute our sample size. Results of the study exhibit that variables such as average loan balance, borrowers per staff member, return on asset, and yield on gross loan portfolio are major determinants of sustainability (financial and operational sustainability) of Indian MFIs.