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Outreach and performance of microfinance institutions: the importance of portfolio yield

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  • Julia Meyer

Abstract

In this paper, we examine the interaction between social outreach and financial return in microfinance. Running multivariate regression models and using 1,805 observations of microfinance institutions between 2004 and 2013, we find strong evidence suggesting that institutions with more social engagement – in terms of outreach to the poor – earn higher portfolio yields. We also find that measures of outreach are associated with increased operating expenses. As return figures are influenced by both costs and yield, and because both increase to a similar degree with the depth of outreach, these two effects lead to a zero sum result on return measures. This finding could explain why existing studies assessing the interaction between social outreach and different measures of financial performance in microfinance (such as return on assets/equity, operating expenses, operational self-sufficiency) have not produced consistent results.

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  • Julia Meyer, 2019. "Outreach and performance of microfinance institutions: the importance of portfolio yield," Applied Economics, Taylor & Francis Journals, vol. 51(27), pages 2945-2962, June.
    • Handle: RePEc:taf:applec:v:51:y:2019:i:27:p:2945-2962
    DOI: 10.1080/00036846.2018.1564016
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    Cited by:

    1. Wu, Wentao & Lin, Zhilu & Oghazi, Pejvak & Patel, Pankaj C., 2022. "The impact of demonetization on microfinance institutions," Journal of Business Research, Elsevier, vol. 153(C), pages 1-18.
    2. Hemtanon, Wittawat & Gan, Christopher, 2022. "Sustainability of Microfinance Institutions in Thailand," Asian Journal of Agriculture and Development, Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA), vol. 19(1), June.
    3. María Jesús Segovia‐Vargas & I. Marta Miranda‐García & Freddy Alejandro Oquendo‐Torres, 2023. "Sustainable finance: The role of savings and credit cooperatives in Ecuador," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(3), pages 951-980, September.
    4. 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.
    5. Wei Xu & Hongyong Fu & Huanpeng Liu, 2019. "Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study," Sustainability, MDPI, vol. 11(21), pages 1-22, October.
    6. Peter Wanke & M. Kabir Hassan & Md. Abul Kalam Azad & Md. Azizur Rahman & Naznin Akther, 2022. "Application of a distributed verification in Islamic microfinance institutions: a sustainable model," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-12, December.
    7. Dawood Ashraf & Muhammad Suhail Rizwan & Barbara L’Huillier, 2022. "Environmental, social, and governance integration: the case of microfinance institutions," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 837-891, March.
    8. Farah NAZ & Sarah SALIM & Ramiz ur REHMAN & Muhammad Ishfaq AHMAD & Rizwan ALI, 2019. "Determinants of financial sustainability of microfinance institutions in Pakistan," Upravlenets, Ural State University of Economics, vol. 10(4), pages 51-64, September.
    9. Gregor Dorfleitner & Davide Forcella & Quynh Anh Nguyen, 2021. "Why microfinance institutions go digital: An empirical analysis," Working Papers CEB 21-003, ULB -- Universite Libre de Bruxelles.

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