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Sustainable Development and Microfinance: The Effect of Outreach and Profitability on Microfinance Institutions' Development Mission

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  • Kerstin Lopatta
  • Magdalena Tchikov
  • Reemda Jaeschke
  • Sumit Lodhia

Abstract

According to the concept of microfinance, financial institutions ought to contribute to sustainable economic and financial systems development by offering access to credit for clients who are usually excluded from the formal banking system. However, in recent decades microfinance institutions (MFIs) have often focused on their profitability rather than the support of their poor clients. In order to empirically examine this mission drift and its consequences for MFIs' performance, we propose a model of MFIs' contribution to sustainable development as dependent on their outreach and profitability focus measured by percentages of female borrowers and profit margins, respectively. Utilizing a large transnational panel data set comprised of institutional and country‐specific data, we provide preliminary empirical evidence indicating that both extensive outreach and profitability are negatively related to development. The model further highlights that the problem of a mission drift is especially pronounced for non‐profit‐oriented MFIs. Copyright © 2017 John Wiley & Sons, Ltd and ERP Environment

Suggested Citation

  • Kerstin Lopatta & Magdalena Tchikov & Reemda Jaeschke & Sumit Lodhia, 2017. "Sustainable Development and Microfinance: The Effect of Outreach and Profitability on Microfinance Institutions' Development Mission," Sustainable Development, John Wiley & Sons, Ltd., vol. 25(5), pages 386-399, September.
    • Handle: RePEc:wly:sustdv:v:25:y:2017:i:5:p:386-399
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    Cited by:

    1. Abiodun Omidiji & Nives Botica Redmayne & Dimu Ehalaiye & Ernest Gyapong, 2024. "Internal audit in microfinance institutions‐ evidence from transitional and developing economies," Economics of Transition and Institutional Change, John Wiley & Sons, vol. 32(1), pages 109-141, January.
    2. Srivardhini K. Jha & Nachiket Bhawe & P. Satish, 2021. "Scaling Social Enterprises through Product Diversification," Sustainability, MDPI, vol. 13(21), pages 1-19, October.
    3. Andualem Kassegn & Ebrahim Endris, 2022. "Factors affecting loan repayment rate among smallholder farmers got loans from the Amhara Credit and Saving Institution: In the case of Habru District, Amhara Regional State, Ethiopia," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 25(1), pages 73-96, March.
    4. Simon Zaby, 2019. "Science Mapping of the Global Knowledge Base on Microfinance: Influential Authors and Documents, 1989–2019," Sustainability, MDPI, vol. 11(14), pages 1-21, July.
    5. Kuruppu, Sanjaya Chinthana & Lodhia, Sumit, 2019. "Disruption and transformation: The organisational evolution of an NGO," The British Accounting Review, Elsevier, vol. 51(6).
    6. I. Berguiga & Y.Ben Said & P. Adair, 2020. "The Social and Financial Performance of Microfinance Institutions in the Middle East and North Africa Region: Do Islamic Institutions Outperform Conventional Institutions?," Journal of International Development, John Wiley & Sons, Ltd., vol. 32(7), pages 1075-1100, October.
    7. Banto, Jean Michel & Monsia, Atokê Fredia, 2021. "Microfinance institutions, banking, growth and transmission channel: A GMM panel data analysis from developing countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 126-150.
    8. Jiguang Wang & Bing Ran, 2019. "Balancing Paradoxical Missions: How Does Microfinance Rebuild a Sustainable Path in Poverty Alleviation?," SAGE Open, , vol. 9(2), pages 21582440198, June.
    9. Arbolino, Roberta & Carlucci, Fabio & Cirà, Andrea & Yigitcanlar, Tan & Ioppolo, Giuseppe, 2018. "Mitigating regional disparities through microfinancing: An analysis of microcredit as a sustainability tool for territorial development in Italy," Land Use Policy, Elsevier, vol. 70(C), pages 281-288.

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