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Targeting The Poor Versus Financial Sustainability And External Funding: Evidence Of Microfinance Institutions In Ghana

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    (Department of Economics, University of Cape Coast, Ghana; Lancashire Business School, University of Central Lancashire, United Kingdom)

This study tests the hypotheses that: (i) formal microfinance institutions (MFIs) using their own mobilized financial resources (based on owners' equity, commercial lending or deposits) for on-lending reach non-poor clients and (ii) concentrating on the achievement of financial sustainability causes an institution to target non-poor clients. Using data on 2,691 MFI clients and non-clients from Ghana, we revisit the microfinance argument of serving poorer clients and sustainability, and in addition examine the effect of the source of funds and type of institution on the financial and social objectives of MFIs. Following the correction of endogeneity, our regression analysis shows that unlike financial self-sufficiency, MFIs that are only operationally self-sufficient reach poorer clients, and also, formal institutions dispensing their own funds target non-poor clients. The latter finding suggests the importance of complementary development strategies and a deliberate harmonization of microfinance interventions, irrespective of the source of funds.

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Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal Journal of Developmental Entrepreneurship.

Volume (Year): 17 (2012)
Issue (Month): 03 ()
Pages: 1-19

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Handle: RePEc:wsi:jdexxx:v:17:y:2012:i:03:p:1250016-1-1250016-19
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