Trade-off between outreach and sustainability of microfinance institutions: evidence from sub-Saharan Africa

Abstract

The changing landscape of the microfinance industry, which is characterized by a decline in donor funding, has reignited debates regarding the ability of microfinance institutions to serve the poor while remaining sustainable. In this study, we examined the relationship between outreach and sustainability in the context of sub-Saharan Africa (SSA) and analysed the determinants of sustainability using data from 71 microfinance institutions (MFIs) across 10 countries. By applying correlation analysis and fixed effects regression, we found mixed evidence of a trade-off between the depth of outreach and operational self-sustainability. Furthermore, the results show that interest rate is a major determinant for MFI sustainability, which is consistent with the institutionalist view. Factors that significantly influence the sustainability of MFIs in SSA are the average loan size as a percentage of gross national income, gross loan portfolio, portfolio at risk, operating expenses to assets ratio, governance effec...