Banking crises and the performance of microfinance institutions

Banking crises affect both banks and their clients, yet their impact on microfinance institutions (MFIs) that serve marginalized populations excluded from the formal financial system remains underexplored. This study examines the effects of banking crises on MFIs using panel data from 1,746 institutions across 123 countries, including five that experienced crises between 2004 and 2017. Despite limitations in the available data, the analysis reveals that most MFIs did not suffer adverse effects on financial performance or outreach, nor did they exhibit mission drift away from their traditional client base. However, microfinance banks—a subset of MFIs—did experience mission drift during banking crises. The findings suggest that MFIs’ resilience stems from their unique characteristics and focus on marginalized clients who often operate within the informal or semi-formal economy. The study highlights the resilience of the microfinance sector and the potential vulnerabilities among microfinance banks, offering insights for donors and stakeholders.