Microcredit and Poverty Reduction: A Case Study of Microfinance Fund for Community Development in Northern Vietnam

The role of Islamic microfinance in poverty alleviation and environmental awareness in Pasuruan, East Java, Indonesia

The role of Islamic microfinance in poverty alleviation and environmental awareness in Pasuruan, East Java, Indonesia: A comparative study

Enhanced productivity remains a crucial agenda for firms to attain cost and competitive advantages in the market. Hence, the main purpose of this study is to investigate the effects of efficiency wage (EW) on the productivity of microfinance institutions (MFIs) with respect to their dual objectives, namely, outreach (depth and breadth) and financial sustainability. Unbalanced panel data of 179 Indian MFIs were collected over the period 2010–2018 from the Microfinance Information Exchange (MIX) market platform (now obtainable from the World Bank catalogue). Under a static model setting (fixed effects model), the observed relationship between EW and MFI’s productivity is mixed. On the one hand, EW exhibits a strong and statistically significant positive relationship with the breadth of outreach, even after considering various control variables and alternative proxies of EW. On the other hand, EW shows no positive influence on the MFIs’ depth of outreach; rather, it results in a mission drift of MFIs, with the poorest of the poor being neglected (weak and insignificant for proxy of EW). Concerning the financial sustainability of MFIs, EW exhibits a positive and statistically significant effect, except for the profitability dimension when an alternative proxy of EW is used. A two-step system generalized method of moments (GMM) performed to limit endogeneity problems also validates most of our findings. The outcomes of this study could help MFIs’ managers in designing appropriate financial packages to enhance MFIs’ productivity and subsequently attain the dual objective of outreach and sustainability.

Although studies encompassing the different aspect of microfinance like sustainability of microfinance institutions (MFIs), role of microfinance in poverty alleviation, etc., have enriched the literature from time to time, studies on competition and its impact on social performance of MFIs are scarce. There also exists lacking consensus as to how can competition influence MFIs’ social performance. The empirical evidence reveals duality of opinion. With information asymmetry, competition enhances borrowers’ indebtedness and lowers expected loan repayment and impeding loan quality. Furthermore, in order to overcome these problems, MFIs would engage in more screening that raises their operational costs. This encumbers the sustainability of MFIs. Thus, the socially oriented MFIs, in order to remain sustainable, start targeting the less poor borrowers. But the other view holds that as competition intensifies, it provokes the MFIs to remain committed with the social objective and to strive to retain the clients. The theory on impact of competition on the social performance of MFIs may be either positive or negative, which calls for further investigation. Against this backdrop, this article attempts to assess the impact of competition on social performance of MFIs in India and Bangladesh. The study is conducted over 53 MFIs from India and 20 MFIs from Bangladesh on which a complete set of data is available. The study period is confined to 9 years from 2009 to 2017. In order to establish the association between competition and MFIs’ social performance, panel data regression is used. The study takes into account the depth and breadth of outreach as the dependent variable. The study uses panel data regression to establish the association between competition and social performance of MFIs. The empirical analysis reveals that competition has no significant association with any of the measures of social performance. This implies that social performance in the sector is explained by other factors. Amongst the country-specific variables, it is clear from analyses that gross domestic product (GDP) and inflation are important determining factors of MFIs’ social performance. Country of origin (COO) of the MFIs is one of the determining factors for social performance as it is found to be significant for three out of the four models. It is also evident from the analyses that Bangladeshi MFIs have a greater impact on MFIs’ social performance in terms of outreach in comparison to Indian MFIs. While for percentage of female borrowers (PFB), Indian MFIs account for greater depth of outreach in comparison to Bangladesh.

Purpose: The purpose of this study was to investigate the relationship between financial outreach and financial sustainability of deposit taking microfinance institutions in Nairobi County, Kenya.
 Methodology: The study employed a positivism research philosophy to determine the relationship between financial outreach and financial sustainability. A population of 13 licensed Deposit Taking Microfinance Institution was considered for this study. Census method was preferred due to small number of target population. A static Panel linear regression model with fixed effect was developed for both operating self-sufficiency and financial self-sufficiency. Secondary data was obtained from Central Bank of Kenya from audited financial statements. Inferential analysis method was employed using Stata statistics software then descriptive statistics tool such as mean and standard deviations were used. several diagnostic tests were conducted namely: normality, multicollinearity, heteroscedasticity, serial correlation, stationarity and Hausman.
 Results: The study found that number of active clients (breath of outreach) had statistically significant relationship; Average loan size (depth of outreach) had insignificant; age of firm (experience of institution) had insignificant relationship on financial sustainability of DTMFIs in Nairobi County, Kenya. The moderating effect between credit risk management (portfolio at risk) and breadth of outreach (number of active clients) was positive while portfolio at risk and experience of institution (age) and depth of outreach (average loan size) was negative on the relationship between financial outreach and (OSS and FSS) financial sustainability. Further, loan loss provision coverage had positive interaction with number of active clients, age, and average loan size on the relationship between financial outreach and financial sustainability of DTMFIs in Nairobi County, Kenya.
 Unique contribution to theory, practice and policy: The study recommended that the government through Central Bank of Kenya should formulate policies that enhance savings with DTMFIs and therefore encourage financial inclusion. Further, DTMFIs should engage in vigorous financial education to boost financial facilities’ awareness to boost the breadth of outreach and get involved in information collection and sharing to mitigate credit risk.

ABSTRACT: Microfinance Institutions (MFIs) foster financial inclusion by offering small, flexible loans to underserved individuals. Group loans, with joint liability, may reduce costs and augment repayment, enhancing financial performance of MFIs. This study empirically analyzes the impact of group loans on costs, repayment rates, and profitability using data from 118 countries. The study employs an unbalanced panel of 1,655 MFIs from 2003 to 2018, consisting of 6,193 observations collected from the World Bank MIX Market Data. It analyzes the impact of group loans on MFIs' cost efficiency, repayment rate, and financial performance using fixed and random effects panel regressions. The study incorporates various control variables such as firm size, outreach, expense ratio, and regional factors. Group loans include both self-help and solidarity loans, and performance is evaluated through metrics such as cost per loan, portfolio at risk, profit margin, and outreach to women and to the poor. The study finds that a higher proportion of group loans improves repayment, financial performance, and outreach for MFIs. A 10% increase in group loans reduces delinquency rates by 0.20%, increases profit margin by 0.005, and raises the return on assets by 0.001. Group lending also extends depth of outreach and outreach to female borrowers, augmenting the social mission of microfinance. Standard diagnostic tests rule out possible endogeneity in the models. These results are statistically significant and robust to the choice of models, measurement of financial performance, and definition of outreach. Overall, the findings confirm that group loans contribute to better repayment behavior, cost efficiency, and financial inclusion, affirming the study's core hypotheses. The study suggests that increasing the proportion of group lending can enhance MFIs' financial sustainability by improving repayment rates. Governments and development organizations should encourage MFIs to adopt group lending models as a tool for achieving social objectives like gender equity and poverty alleviation. In addition to supporting loans with joint liability and peer monitoring, MFIs and policymakers should implement risk-mitigation strategies like borrower training, progressive loans, and strong monitoring to enhance group lending outcomes.

Microfinance institutions (MFIs) play an important role in enhancing the growth potential of small businesses. However, while regulation ensures that MFIs are financially sustainable, compliance compels them to make large-sized loans to wealthy clients in order to reduce the risk of lending and minimize administrative costs, a situation that compromises their main goal of reaching out to the poor. The study therefore, examined the effect of regulation on breadth and depth of outreach by microfinance institutions (MFIs) in Ghana. The purpose of the study is to find out whether regulation has enabled MFIs to increase their outreach (breadth and depth) thereby improving their sustainability. A mixed methods research design was employed, involving initial hypotheses testing with 31 self-regulated and 24 Central bank-regulated MFIs. The findings were then triangulated with a qualitative research design involving 13 Central bank-regulated and 20 self-regulated MFIs. The results showed that regulations increased the client base of MFIs but reduced the percentage of poor clients served, largely women. It is recommended that the government set up a fund for poor clients to be accessed by well-performing MFIs for provision of financial services to the poor to assist in poverty reduction.

Building on the economies of scope framework, we estimate how the use of mandatory deposits alone in credit-only microfinance institutions (MFIs) or in combination with voluntary deposits in credit-plus-deposit MFIs is associated with the performance of MFIs in terms of financial sustainability, breadth, and depth of outreach. We account for MFIs’ double bottom line with the seemingly unrelated regressions method and use data from 544 MFIs worldwide for the period 2000–2015. We show that, for credit-only MFIs, mandatory deposits are associated with improved depth of outreach to the poor. For credit-plus-deposit MFIs, we find a trade-off: mandatory deposits are associated with a decrease in financial sustainability but an increase in breadth of outreach. We also analyze the moderating role of mandatory deposits. High-risk loans collateralized by mandatory deposits are more likely to reach poorer clients in credit-only MFIs and help to reach more borrowers in credit-plus-deposit MFIs, but at a higher cost.

The paper analyzes the determinants of social outreach of microfinance institutions (MFIs), using three measures of outreach – depth of outreach, breadth of outreach, and outreach to women, and its possible complementarity with financial performance. We use an unbalanced panel of 1,219 MFIs over a period of 20 years to investigate the effect of firm-specific characteristics and the impact of prevailing legal system on social outreach of MFIs. Rejecting the notion of tradeoff between financial performance and social outreach, our empirical results show that better financial performance has a positive association with social outreach. Furthermore, we observe that a common law legal system is more conducive in facilitating social outreach, and MFIs operating under common law legal system achieve better depth of outreach, breadth of outreach, and outreach to women, than MFIs under code law legal system and mixed law legal system. While we had expected nonprofit MFIs to exhibit better social outreach than for profit MFIs, we found empirical evidence of such only in the case of outreach to women. Finally, we find empirical evidence that unregulated MFIs achieve better social outreach than regulated MFIs.

To present and compare socioeconomic status (SES) rankings of households using consumption and an asset-based index as two alternative measures of SES; and to compare and evaluate the performance of these two measures in multivariate analyses of the socioeconomic gradient in malaria prevalence. Data for the study come from a survey of 557 households in 25 study villages in Tanzania in 2004. Household SES was determined using consumption and an asset-based index calculated using Principal Components Analysis on a set of household variables. In multivariate analyses of malaria prevalence, we also used two other measures of disease prevalence: parasitaemia and self-report of malaria or fever in the 2 weeks before interview. Household rankings based on the two measures of SES differ substantially. In multivariate analyses, there was a statistically significant negative association between both measures of SES and parasitaemia but not between either measure of SES and self-reported malaria. Age of individual, use of a mosquito net, and wall construction were negatively and significantly associated with parasitaemia, whilst roof construction was positively associated with parasitaemia. Only age remained significant when malaria self-report was used as the measure of disease prevalence. An asset index is an effective alternative to consumption in measuring the socioeconomic gradient in malaria parasitaemia, but self-report may be an unreliable measure of malaria prevalence for this purpose.

This study evaluates the socio-economic impact of rural electrification through photovoltaic (PV) systems in Morocco. As part of the country’s broader energy transition strategy, decentralized renewable energy solutions like PV kits have been deployed to improve energy access in isolated rural areas. Using quasi-experimental econometric techniques, specifically propensity score matching (PSM) and estimation of the Average Treatment Effect on the Treated (ATT), the study measures changes in household income, expenditures, and economic activities resulting from PV electrification. The results indicate significant positive effects on household income, electricity spending, and productivity in agriculture and livestock. These findings highlight the critical role of decentralized renewable energy in advancing rural development and poverty reduction. Policy recommendations include expanding PV access with complementary support measures such as microfinance and technical training.

The Life Cycle Theory (LCT) has been applied in business in an effort to explain the ‘birth, growth, maturation and death’ processes of firms. However, its application and relevancy in the microfinance field has not been popular. The LCT connotes that, the management of MFIs gains experience through time hence sharpen the business model and MFI financing. This allows MFIs to navigate from being small, inefficient and un-sustainable institutions into large, sustainable and financially sustainable institutions. Financial sustainability is celebrated by institutionalists for enhancing outreach to the poor in a consistent way. This makes financial sustainability a supreme MFI development lag necessary for every MFI. Evidence on whether MFIs develop towards financial sustainability has remained on the low side as research has continued to shy away from addressing this worthy cause. In an effort to explain whether MFIs mature towards financial sustainability, this study employs data from selected Southern Africa Development Community (SADC) MFIs, a deviation from a prior study which considered MFIs from across the world with high disclosure tendencies and asset values. We selected SADC MFIs (small and large) on the pretext that, SADC MFIs are typically financially unsustainable as portrayed by an earlier survey – raising concerns on their ability in serving the persistently poverty stricken region. Getting to know whether the LCT can explain financial sustainability becomes obligatory in designing intervention mechanisms. Panel regression methods adjusted for various robustness checks show that, the LCT cannot fully explain MFI financial sustainability. We note the role of MFI financing structure and efficiency measures in defining financial sustainability. Low cost financing sources (equity) support financial sustainability. Donations limit financial sustainability as they nurture dependency and inefficiency. Regulatory costs linked with deposit collection also constrain financial sustainability. We suggest the usage of low cost internal financing sources if MFIs are to attain FS. In the same realm, MFIs ought to restrain costs, whether they come from the financing side or operational side for financial sustainability to be attained. We note the need to maintain a quality loan portfolio to endorse FS.

Background and Purpose: Microfinance is the most effective and widely acknowledged method of poverty alleviation across the globe but these days every so and often the MFIs are digressing from their primary mission in pretext of financial and operational sustainability of the organizations. The purpose of this research is to confirm the adherence of double bottom line sustainability of Microfinance institutions (MFIs) and further to identify the determinants of MFIs sustainability in the Philippines.
 
 Methodology: The sample for the study was obtained from MIX- market for the period 1999-2018. Principal component analysis and KU model are used to measure the sustainability scores of MFIs. Later, a panel regression model is applied to identify the determinants of sustainability.
 
 Findings: MFIs are not adhering to the double bottom line sustainability as majority of MFIs were unsustainable at different benchmarks set for the study. The sustainability can be achieved if MFIs start utilizing their assets, focus on improving their efficiency and portfolio quality. MFIs size also significantly influences the sustainability of MFIs.
 
 Contributions: This study highlights the need for policy makers and regulators to develop a regulatory framework to reduce the operating cost and improve the portfolio quality of MFIs in the Philippines. They should also provide guidelines that would help MFIs in improving their asset utilization ratio as it would help them adhere to double bottom line sustainability.
 
 Keywords: Sustainability, microfinance, double bottom line, outreach, financial sustainability.
 
 Cite as: Bhuiyan, A. B., Saad, J., Md Kassim, A. A., Munir, A. N., & Ali, M. J. (2023). Sustainability of microfinance institutions in the Philippines. Journal of Nusantara Studies, 8(TI), 43-61. http://dx.doi.org/10.24200/jonus.vol8issTIpp43-61

The paper analyzes the determinants of social outreach of microfinance institutions (MFIs), using three measures of outreach – depth of outreach, breadth of outreach, and outreach to women, and its possible complementarity with financial performance. We use an unbalanced panel of 1,219 MFIs over a period of 20 years to investigate the effect of firm-specific characteristics and the impact of prevailing legal system on social outreach of MFIs. Rejecting the notion of tradeoff between financial performance and social outreach, our empirical results show that better financial performance has a positive association with social outreach. Furthermore, we observe that a common law legal system is more conducive in facilitating social outreach, and MFIs operating under common law legal system achieve better depth of outreach, breadth of outreach, and outreach to women, than MFIs under code law legal system and mixed law legal system. While we had expected nonprofit MFIs to exhibit better social outreach than for profit MFIs, we found empirical evidence of such only in the case of outreach to women. Finally, we find empirical evidence that unregulated MFIs achieve better social outreach than regulated MFIs.

The Micro Financial Institutions (MFIs) have been touted as development strategies for Emerging Markets and Developing Economies (EMDEs) which merits research into the effect of financial development on the efficiency and sustainability of the MFIs. The Efficient and sustainable MFIs significantly paved the way for the economic development of a country particularly in developing countries. Surprisingly there are very rare studies that examine the nexus of financial development, MFIs efficiency, and sustainability. Also, these studies are confined to the impact of financial development either on the efficiency or sustainability of MFIs. Addressing this gap, the study attempts to explore the country-specific and MFIs-specific factors which significantly affect the efficiency and sustainability of the MFIs. For this purpose, the study first determines whether financial development contributes to the efficiency and sustainability of MFI. Secondly, the effect of MFIs’ specific characteristics such as credit risk, market risk, liquidity risk, lending strategy, Development Financial Institutions (DFIs) funds management, financial outreach, and poverty alleviation on the efficiency and sustainability of MFIs. The study has been conducted for Bangladesh, India, and Pakistan consisting of a panel data set of 12 MFIs over a period spanning from 2008–2018 using Stochastic Frontier Analysis and Cobb Douglas production function regression analysis. Overall empirical analysis reveals that financial development has significantly affected the efficiency and sustainability of the MFIs. While specific characteristics such as poverty alleviation and DFIs funds management have been shown to improve MFIs efficiency whereas an increase in credit risk, lending strategy, and market risk decrease MFIs sustainability and liquidity risk along with an increase in financial outreach leads to a decrease in MFIs efficiency. The directions and magnitudes of the findings suggest the stakeholders for all three countries for the significant direction leads to the efficiency and sustainability of MFIs. Moreover, future research could strive to understand the aspects of financial development which negatively correlate with the MFIs’ efficiency and sustainability such as stringent tax policies, creditor rights protection, and implementation of rules and regulations.