To profit or not to profit? Assessing financial sustainability outcomes of microfinance institutions

Abstract

AbstractWe used a multilevel approach on comparing for‐profit and not‐for‐profit microfinance institutions (MFIs). The database was composed of 202 MFIs (in 52 countries) from the most widely used microfinance dataset (the Microfnance Information eXchange, Inc. Market), with 669 observations from 2010 to 2014. Four financial sustainability outcomes were considered: yield on gross portfolio; return on assets; portfolio at risk, 30 days; and operational self‐sufficiency (OSS). Although for‐profit MFIs had a higher Yield, there was no significant effect of profit orientation on ROA, PAR30, and OSS. Further analysis shows that although profit orientation has a significant effect on the yield of small MFIs, it does not have any effect on larger MFIs, which is consistent with the theory that larger MFIs can distribute its fixed costs better, requiring lower interest rates and allowing smaller yield on the gross portfolio. In addition, we show that the intrinsic characteristics of the MFIs account for the majority of the variance from the four outcomes.