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The impact of scale of operation on financial performance in microfinance

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  • Trong Ngo
  • Andrew Mullineux
  • Anh Ly

Abstract

Due to the limitations of the extant literature on the impact of scale of operation on microfinance performance, this paper has been written in an effort to fill this major gap by conducting an empirical investigation into the link between scale of operation, sustainability and efficiency of microfinance institutions (MFIs). It introduces new evidence and possible explanations from an explicit perspective that might be relevant in the context of profit status, regulated status and legal status. First, large MFIs can achieve higher efficiency, profitability, sustainability and outreach (breadth and depth). Second, there is no trade-off between the breadth of outreach and efficiency. Third, larger loan sizes are associated with higher loan costs. Therefore, MFIs need to choose the optimal scale to achieve the greatest efficiency and profitability from economies of scale. Copyright Eurasia Business and Economics Society 2014

Suggested Citation

  • Trong Ngo & Andrew Mullineux & Anh Ly, 2014. "The impact of scale of operation on financial performance in microfinance," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 4(2), pages 177-198, December.
    • Handle: RePEc:spr:eurase:v:4:y:2014:i:2:p:177-198
    DOI: 10.1007/s40822-014-0011-4
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    Cited by:

    1. Mira Nurmakhanova & Gavin Kretzschmar & Hassouna Fedhila, 2015. "Trade-off between financial sustainability and outreach of microfinance institutions," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 231-250, December.
    2. Sachiko Kazekami, 2017. "Do service sectors need core sectors to improve their productivity?," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 7(3), pages 389-410, December.
    3. Tanweer Hasan & Shakil Quayes & Baqui Khalily, 2019. "Role of governance on performance of microfinance institutions in Bangladesh," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 91-106, March.

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    More about this item

    Keywords

    Microfinance; Microfinance institutions; Scale of operation; Financial performance; Sustainability and efficiency; D92; G21; G32;
    All these keywords.

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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