The Trade-Off Between Outreach and Efficiency in Microfinance Institutions

Abstract

Microfinance institutions (MFIs) aim to increase the standard of living in poor communities through small-scale lending. Because many people lack collateral in these impoverished areas, obtaining loans from banks is difficult if not impossible. Small-scale lending allows individuals to start or expand their business. However, many microfinance institutions are heavily subsidized. Recent interest in the commercialization of microfinance institutions has begun a spark in the interest of creating sustainable MFIs. This study examines existing microfinance institutions throughout the world to determine the trade-offs associated with outreach and sustainability. Data is used from the Microfinance Information Exchange, which is a non-profit organization that collects self-reported data and is an information provider in the microfinance sector. Over 16,000 data points were used spanning about 20 years time. Analysis of the data indicates that tradeoffs include percent of female borrowers and amount of assets.