Trade-Off between Financial Performance and Poverty Outreach - Evidences from Panel of Indian Microfinance Institutions

Abstract

The present study tried to empirically ascertain the relationship between financial orientation of microfinance institutions and their poverty outreach in Indian context. An unbalanced panel of 55 microfinance institutions covering the period 2005-2009 is taken. We relied mainly on the Hausman and Taylor panel data model due to the inclusion of time invariant regressors which make fixed effect model inapplicable and the assumptions underlying random effect model are not fulfilled. Empirical exercise suggests the existence of a trade-off. Regulation or profit orientation seems to play significant role. Geographical location and lending approach followed by MFIs does not affect poverty outreach. Grameen model is the best approach as far as targeting of females is concerned while the individual lending approach has least targeting of female clients.