Abstract
The paper analyzes the effect of organizational structure of a Microfinance Institution (MFI) on its financial performance and social outreach. Our analysis also accounts for variation in the legal structure and timing of business cycles across countries. We apply a model that controls for endogeneity between the outreach and financial performance. Empirical results from a panel data of 1,518 MFIs from 105 different countries over a period of 20 years, provide robust results indicating that MFIs which are nongovernmental organizations (NGO) have better social outreach than all other type of MFIs and exhibit better financial performance than MFIs that are registered as commercial banks or credit unions. This indicates an NGO organization structure is better suited to achieve the dual objectives of social outreach and financial self-sufficiency of an MFI.
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