Outreach Performance Research Articles

Social versus financial performance: evidence from microfinance institutions in Ethiopia

PurposeToday, the sustainability and outreach of microfinance institutions (MFIs) are crucial to the success of microfinance and the sector’s potential to make a lasting impact. The ability of MFIs to operate financially well without sacrificing their social goals has come under scrutiny. This study aims to identify the kind of relationships between the two objectives of MFIs in Ethiopia.Design/methodology/approachThis study investigated the association between the outreach and financial sustainability of Ethiopian MFIs from the years 2012 to 2021 using a balanced set of panel data. The study used secondary data and employed a descriptive research design and a quantitative research approach. To this end, random and fixed effects estimation models, as well as three-stage least squares, with the model of seemingly unrelated regression (SUR) are used.FindingsAccording to the study, outreach performance enables MFIs to achieve sustainability/financial performance. On the other side, MFI that are financially sound improve social performance. There was therefore no trade-off between the two objectives.Originality/valueAs Ethiopia’s microfinance sector shifts away from government and non-government backing and toward commercialization, such research is crucial. This aspect of the Ethiopian microfinance industry has gotten little consideration in research. The SUR model was used in the study together with random and fixed effect estimators, and the most reliable estimation result was chosen based on the necessary tests.

Effects of Transformation on Outreach Performance of Microfinance NGOs in Kenya

This research examines how transformation affects the outreach performance of microfinance NGOs in Kenya. Specifically, it analyzes the impact of various transformation indicators on outreach performance. Utilizing a quantitative research approach, the study utilizes unbalanced panel data spanning 19 years (1997 to 2015) obtained from the Microfinance Information Exchange (Mix) Market databank, focusing on six surveyed transformed microfinance NGOs in Kenya. Panel data regression models and instrumental variables estimation methods are employed for model specification. The findings reveal that outreach, measured by the average loan balance per borrower, is significantly and negatively influenced by the debt-to-asset ratio but not significantly affected by the debt-to-equity ratio or deposits-to-total assets ratio. The percentage of female borrowers is significantly influenced by the debt-to-equity ratio and debt-to-asset ratio, while the number of active borrowers is significantly influenced by the debt-to-asset ratio, deposits-to-total assets ratio, institutional size, and institutional age. These results suggest a necessity for microfinance NGOs facing capital funding challenges to devise policies that facilitate the utilization of commercial capital sources to expand outreach to impoverished individuals. Nonetheless, the management of transformed microfinance NGOs must implement safeguards ensuring that the pursuit of commercial funding options and public deposits does not compromise their mission of serving the most vulnerable populations.

Mission Drift and Scale: An Empirical Analysis of Indian Micro Finance Institutions

Studies have found that a small scale of operations could limit the firm performance since they do not enjoy economies of scale. Since the microfinance industry is focused on provision of financial services to the poor, performance is measured both from a social as well as financial perspective. As firms increase their scale of operations, their social performance needs to be on par with their financial performance. To measure the effect of scale on performance, we use data from the Microfinance Information Exchange (MIX) market consisting of 245 Microfinance Institutions (MFIs) covering a period of 21 years from 1999 to 2019. The dependent variables are outreach, efficiency, and financial performance. The control variables are age and the regulatory status of the firm. We find that while factors like financial performance, client retention, and measures of operational efficiency are dependent on scale; they come at the cost of outreach. The pursuit of economic goals by large MFIs seems to hamper their ability to reach the poorest and/or most needy clients, implying mission drift. This study thus draws the attention of policy makers to the importance of supporting small MFIs to survive and continue to address the social goals of MFIs.

Outreach and Financial Performance of select MFIs in India - An Empirical Analysis

Outreach and Financial Performance of select MFIs in India - An Empirical Analysis

Financial sustainability and outreach in microfinance institutions: evidence from MENA countries

ABSTRACT Microfinance Institutions (MFIs) have a significant role in filling the gap between the formal financial institutions and the poor people. This study aims at estimating the interaction between outreach and financial sustainability in MENA countries. The study examines 82 MFIs for 2004–2018, ends up with 133 observations. A panel data technique is employed for model specification. Our findings confirm a trade-off between financial sustainability and outreach performance by MFIs in MENA countries, and we recommend that MFIs must take care of the management of financial ratios, such as ROA, ROE and OSS and performance, to achieve financial sustainability and outreach.

An empirical analysis of Thai village funds and saving groups’ financial performance

Microfinance institutions (MFIs) play an important role in enabling poor households to escape poverty. MFIs cannot help borrowers if their own performance is poor. This study evaluates financial performance of Village Funds (VFs) and Saving Groups for Production (SGPs) to determine how well the MFIs are performing financially and how to improve the institutions’ future performances. The study evaluates MFIs’ performance, including MFI characteristics, outreach, productivity, financial structure and financial performance. Data are collected from the annual reports of MFIs between 2014 and 2016. VF and SGP annual reports were collected by the Government Savings Bank between 2014 and 2016. Data are analyzed using descriptive statistics, such as means, to compare the VFs’ and SGPs’ performance. The result shows that SGPs are bigger than VFs in terms of the average number of members and borrowers. However, VFs provide more loans than SGPs to poorer clients. In terms of loan management, SGP staff are more efficient than VF staff. SGPs’ profits are significantly higher than VFs’ profits. In the context of financial structure, SGPs are funded through member deposits, while VFs receive government subsidies. The results indicate that both VFs and SGPs are profitable and financially sustainable.

Female on boards and the risk-taking of microfinance institutions: The moderating role of outreach

This study examines the effect of female on boards on risk-taking with data from 401 microfinance institutions (MFIs) drawn from 64 countries. The study also investigates whether the effect is sensitive to the outreach performance of MFIs. The MFIs sampled for this study are spread across the six MFI regions. The study measures MFI risk by its risk-taking Z-score and risk-adjusted return on assets. The fixed effects estimation technique, known to overcome the omitted variable bias, is deployed to analyze the data. The results show that female representation in the boardroom increases the risk-taking of MFIs. However, when female on boards interacts with the depth of outreach performance of an MFI, its positive impact on MFI risk is observed. It suggests that female directors are more likely to be beneficial to risk management in MFIs that lend more to indigent clients. Several tests, including an instrumental variable test for endogeneity, have been conducted to confirm the robustness of these results.

Factors Influencing Outreach Performance of Microfinance Sector in India

In recent years microfinance institutions (MFIs) have been duly recognised as an important component of financial system as MFIs can facilitate the agenda of financial inclusion. MFIs provide unbanked and poor appropriately designed financial products and services. MFIs have addressed the issues concerning supply-side barriers 1 to financial inclusion by enhancing its outreach across the countries/regions. However, outreach performance of MFIs is affected by factors concerning MFIs such as age, size, profitability, efficiency, productivity and portfolio quality, which affect outreach (breadth/depth) of MFIs. The present study has attempted to study the factors affecting outreach performance of MFIs in India. The study using unbalanced panel data for 39 Indian MFIs concludes that age, assets and productivity indicators have affirmative association with outreach performance of MFIs in India.

The Impact of Social Outreach on the Financial Performance of Microfinance Providers in Pakistan

Microfinance, the tool for poverty alleviation had gone through a paradigm shift as a result of the wave of commercialization of microfinance providers. Increased focus to financial goals and the dreaded trade-off from the pursuance of social outreach goals could force microfinance service providers (MFPs) to the mission drift. To solve the entangled puzzle of mutuality between the social outreach and financial performance of MFPs in Pakistan, this study empirically analyses the impact of outreach on financial performance of MFPs in Pakistan by using a sample of 38 MFPs for the period of 1998-2014. Results suggest that there is significant and positive association between depth of outreach and financial performance. The empirical evidence signaled no trade-off between depth of outreach and financial performance. Results showed the achievement of dual mission for MFPs is possible, as the depth of outreach had a significant positive effect on the financial performance of MFPs in the context of Pakistan. Findings remain consistent by using alternative proxies of financial performance. Keywords: Microfinance, Financial Performance, Outreach, Mission drift, Trade-off, Panel data DOI : 10.7176/EJBM/11-31-08 Publication date: November 30 th 2019

Enhancing the role of Baitul Maal in giving Qardhul Hassan financing to the poor at the bottom of the economic pyramid

PurposeBaitul Maal wa Tamwil (BMT) is an Islamic microfinance institution created by combining the functionality of Baitul Maal and Baitul Tamwil in Indonesia. While Baitul Maal plays the role of an institution that collects funds from zakah, cash waqf, infaq and sadakah, Baitul Tamwil then distributes these funds in the form of Qardhul Hassan financing to the poor at the bottom of the economic pyramid (BOP). This study aims to explain the poverty alleviation effort by BMT regarding its role in providing Qardhul Hassan financing to the people at the BOP and provide practical suggestions to maximize the outreach performance of the BMT.Design/methodology/approachIn this methodology, the study adopts the qualitative analysis of reviewing the literature and interviewing the BMT staff in Jakarta, Makassar and Nusa Tenggara Barat areas to present the views of the practitioners related to the role of Baitul Maal in giving Qardhul Hassan financing to the people at the BOP using appreciative intelligence framework.FindingsThe study finds that BMT in Indonesia needs several stage-specific structures and roles to be effective. In particular, there is a need to separate the function of Baitul Maal from Baitul Tamwil to enhance its role when giving Qardhul Hassan financing to the people at the BOP. The role of Baitul Maal in alleviating the poverty figure is also drawn in this study.Originality/valueThe findings of this study add to the literature on Baitul Maal by enabling researchers and practitioners to appreciate the role of Baitul Maal, and these findings also contribute towards enriching the knowledge in Baitul Maal and financing requirements of the poor at the BOP. This paper also contributes to the field of Islamic accounting which is currently getting prominent.

Performance Evaluation Frameworks in the Context of Indian Microfinance Institutions

Abstract The paper conducts a detailed examination of the existing evaluative frameworks for microfinance institutions to gauge the differences and similarities. Efficiency evaluates how MFIs are meeting the performance standards considering time and budget constraints. Outreach evaluates the effectiveness of MFIs in reaching the beneficiaries. Relative efficiency scores were calculated using data envelopment analysis and outreach was measured in five different dimensions (pentagon model). Further, cluster analysis assisted in categorizing the MFIs into five value clusters. The study compares both outreach performance and relative efficiency scores employing ANOVA and correlation analysis. The study was conducted among the Indian context when the sector was hit by crisis during 2010. Paper brought out important insights about the sample. Indian MFIs were found to be more socially efficient, since the social dimension taken into consideration was number of female clients and majority of Indian MFIs has exclusive female focus. The correlation tests found that relative efficiency scores are positively related to depth (poor focus) and length (sustainability) outreach. The results showed that cluster analysis model basing outreach scores was more comprehensive and captured more information compared to the data envelopment model relative efficiency scores. The study is original in its approach in using cluster analysis for outreach performance and in the objective of comparing the two different models.

Role of Managerial Competencies and Risk-Taking Behavior in Financial Service Outreach of Microfinance Banks in Pakistan

This study aims to investigate the relationship between the managerial risk-taking, managerial competencies and financial service outreach of microfinance banks in Pakistan. Primary data was collected from 36 branches of microfinance banks (MFBs) in nine cities. The unit of investigation is the branch manager and senior credit officer of each MFB branch. Descriptive statistics, correlation and regression, are used for data analysis. This study found a positive relationship between financial service outreach of MFBs and managerial competencies; financial service outreach also has a positive relationship with the risk-taking behavior of managers. There is a positive relationship between risk-taking behavior and financial service outreach of banks. The risk-taking behavior partially mediates the relationship between the managerial competencies and financial service outreach. The magnitude of the relationship between managerial competencies and outreach is significant, and its magnitude reduces when there is the mediation of managerial risk-taking behavior between them. Thus, managerial competencies, along with risk-taking behavior are the keys drivers of financial service outreach of MFBs. This study informs MFB’s top management and policymakers that competencies of managers and their calculated risk-taking propensities determined outreach performance of the MFBs.

The macroeconomy and microfinance outreach: a panel data analysis

ABSTRACTThis study examines the effects of macroeconomic and institutional factors on microfinance institution (MFI) outreach. To capture the performance of the macroeconomy, we include proxies for institutional quality, economic growth, FDI inflow, unemployment rate, inflation and the prevalence of wage-earning jobs. Further, we examine effects on outreach along the dimensions of outreach depth and outreach breadth. Using data on 1526 MFIs from 99 countries over the period 2000 to 2015, our results suggest that environments characterised by high levels of economic performance and good institutions tend to hinder outreach performance. These results suggest that MFIs depend on a poor economy to thrive given the informal nature of microfinance.

Financial sustainability and outreach performance of saving and credit cooperatives: The case of Eastern Ethiopia

Financial cooperatives and microfinance institutions are typical models that disprove the traditional assumption that the poor are neither creditworthy nor able to save. The principal objective of Savings and Credit Cooperative Societies are accumulating savings and creating a source of credit to members at a fair and reasonable interest rate. SACCOs need to be financially sustainable and accessible in order to provide sustainable financial products and effectively serving the poor. The main objective of this study is to examine the sustainability and outreach performance of SACCOs in Eastern Ethiopia. The study employed both descriptive and causal research design. 46 SACCOs that have been operating at least for three years with audited financial reports were selected for the study. The study used secondary data sources mainly audited financial statement of the society for the year 2016. The study found that SACCOs in Eastern Ethiopia are financially sustainable and their outreach performance is at moderate level. Return on asset, operational efficiency, debt equity ratio, donation, and deposit mobilization are statistically significant predictor variables in determining the financial self-sufficiency of SACCOs. Similarly, financial self-sufficiency, size, debt equity ratio and donation are statistically significant predictor variables in determining the outreach performance of SACCOs.

Board committees and performance in microfinance institutions

PurposeThe purpose of this paper is to empirically relate subordinate board structures with improved financial and social performance in microfinance institutions (MFIs).Design/methodology/approachThe research question is analyzed using a panel data from 23 MFIs in Ethiopia over a period of 2006-2011. Random effects panel data estimation is applied to analyze the link between board committees and MFI’s performance.FindingsIn MFIs with larger than average boards, the findings demonstrate significant ties between financial and outreach performance and how their boards are structured. The structure of board committees moderates the relation between board size and financial and outreach performance measures. Importantly, board committee benefits MFIs through better operational self-sufficiency, lower operating expenses, greater outreach to customers, and outreach to poorer customers using average loan size as the proxy.Practical implicationsPractitioners within microfinance sector, and those operating in advisory and regulatory roles to the sector could benefit from the argument advanced in the paper in that normative recommendation to restructure boards or establish committees requires reevaluating the board characteristics vis-à-vis the optimal monitoring, controlling, and advising needs of the institution.Originality/valuePrior literature focuses on who sits on boards, how large are the boards, and how independent are they. This paper advances the understanding of the structure of board committees and how this may affect the performance of MFI. This approach provides better representation of director’s role and is thereby a good test of board effectiveness.

Determinants of Outreach Performance of Microfinance Institutions in Pakistan

Microfinance institutions (MFIs) are developed to provide financial services to poor people usually ignored by commercialized institutions. Their main purpose is to increase outreach both in terms of depth and breadth, by providing small loans and reaching maximum number of poor people. This study aims to study the factors that influence the outreach performance of MFIs in Pakistan. By using random effect regression, factors that influence the depth and breadth of outreach were determined. Return on asset and firm size effect both the depth and breadth of outreach, whereas, portfolio at risk greater than 30 days impact the breadth of outreach only. Additionally, operating expense ratio does not influence the outreach performance of MFI.

Determinants of microfinance outreach in Sub-Saharan Africa: A panel approach

Orientation: The study focused on analysing the outreach performance of microfinance institutions (MFIs) in providing critical services for the poor using innovative lending techniques within constrained environments. Research purpose: The study examined the trade-off relations between the depth and the breadth of outreach and identified institutional level factors that influence MFIs outreach in sub-Saharan Africa (SSA). Motivation for the study: MFIs continue to play critical roles in extending financial services to the poor and yet previous studies have not analysed comprehensively the dimensions of outreach necessary for financial inclusion. Research design, approach and methods: The study employed correlation analysis and random effects methodology to panel data regression analysis (619 observations, 71 MFIs across 10 countries) to establish the trade-off relations and the determinants of outreach in SSA. Main findings: It was established that a trade-off exists between the depth of outreach (access to credit disbursement by poor clients) and breadth of outreach (number of clients served). The results further revealed that gross loan portfolio, portfolio at risk, borrower per staff member, interest rate, and operating expenses to assets ratio are the main institutional determinants of MFIs outreach in SSA. Practical/managerial implications: The policy implication is that MFIs that concentrate efforts in reaching the relatively poor do so at the expense of reaching a large number of poor clients. We suggest that effective monitoring of depth and breadth and the adoption and implementation of cost-saving outreach technologies by MFIs could enable them to operate sustainably and efficiently. Contribution/value added: A major contribution of the study is the trade-off relations revealed between the depth of outreach and the breadth of outreach of MFIs which advances the outreach literature.

Determinants of the governance quality of microfinance institutions

Abstract The objective of this article is twofold: identify the primary board characteristics that drive the quality of MFI governance and link governance quality to microfinance institutions’ outreach performance. We measure governance quality with the governance rating score provided by Planet Rating, one of the agencies that specialize in the rating of microfinance institutions. The study focuses on an independently pooled cross-section sample of 178 MFIs rated by Planet Rating from 2001 to 2011. Findings obtained after controlling for selection bias suggest that board expertise, board activity, and ownership type are the main board characteristics that significantly determine the quality of MFI governance. Findings seem to be robust when we change the measurement of board size and ownership type. Moreover, MFIs with an effective governance system tend to serve large numbers of customers.

Microfinance and Labor Market Failures: International Evidence

I investigate whether the degree of labor market imperfections in a country affect microfinance institutions’ (MFIs) profitability and impact MFIs’ effectiveness in improving low-income households’ inclusion in financial markets. I find that the financial performance of MFIs is high in heavily regulated labor markets. I also find evidence of a substitution between MFIs’ outreach performance and labor market regulations. Overall, the evidence is consistent with the view that microfinance is most successful when the demand for microcredits increases as rigid regulations decrease the number of outside job opportunities.

THE DETERMINANTS OF OUTREACH PERFORMANCE OF SOCIAL BUSINESS: AN INQUIRY ON ITALIAN SOCIAL COOPERATIVES

ABSTRACTWe analyze factors affecting outreach performance of a large sample of (type A) social cooperatives in Italy taking into account their heterogeneity with a multi‐output stochastic distance function frontier. We find that cooperative age, innovation leading to new products/customer segments, managerial turnover, target programming and shareholder variety are positively and significantly (while shareholder meetings, the number of volunteers and of contracts negatively and significantly) correlated with outreach performance, measured as the capacity of serving more beneficiaries given labour and capital inputs. Outreach is also significantly and positively affected by local GDP and human capital.