Sustainability of microfinance institutions: the role of outreach and financial sustainability

Abstract

This paper aims to examine how selected outreach and financial indicators impact on the sustainability of Indian microfinance institutions. It adopts a quantitative approach based on the secondary data from conveniently sampled 40 microfinance institutions. A panel data technique is employed for model specification. It is shown that outreach and financial sustainability indicators affect to each other. Outreach indicators have a positive association with the profitability of microfinance institutions. Repayment levels of the loan have a positive impact on the outreach and negative impact on the financial sustainability. Microfinance institution may be focused on the repayment rate for attaining the level of sustainability. A clear balance may be in social objective and institution sustainability to ensure the sustainability of microfinance institutions is recommended. Studies on the trade-off between outreach and financial sustainability are limited especially in India. Its application added some precious characteristics in the microfinance sector.