The effect of regulations on ability of MFIs to provide sustained financial services to small business

ABSTRACT The study examined the effect of regulation on financial sustainability of microfinance institutions (MFIs). A mixed-methods research design was employed involving deductive thematic analysis of interviews with 33 MFI managers. This was followed by t-tests of differences between 24 highly regulated rural and community banks (RCBs) and 31 less regulated “susu” companies on the measures of financial sustainability. A new dimension was added to literature by employing both qualitative and quantitative analysis, giving respondents a voice and ensuring findings reflected their experiences and ideas. Participants recognized an association among financial sustainability, revenue generation and operations efficiency. They noted that regulations provide benefits that improve revenue generation but also increase cost of operations. T-tests showed “susu” companies were more financially sustainable than RCBs. It is recommended that MFIs deliver innovative products to enable owner-managers grow their businesses, while enabling the MFIs to expand their outreach and improve their financial sustainability.