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To profit or not to profit? Assessing financial sustainability outcomes of microfinance institutions

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  • Rodrigo de Oliveira Leite
  • Layla dos Santos Mendes
  • Luiz Claudio Sacramento

Abstract

We used a multilevel approach on comparing for‐profit and not‐for‐profit microfinance institutions (MFIs). The database was composed of 202 MFIs (in 52 countries) from the most widely used microfinance dataset (the Microfnance Information eXchange, Inc. Market), with 669 observations from 2010 to 2014. Four financial sustainability outcomes were considered: yield on gross portfolio; return on assets; portfolio at risk, 30 days; and operational self‐sufficiency (OSS). Although for‐profit MFIs had a higher Yield, there was no significant effect of profit orientation on ROA, PAR30, and OSS. Further analysis shows that although profit orientation has a significant effect on the yield of small MFIs, it does not have any effect on larger MFIs, which is consistent with the theory that larger MFIs can distribute its fixed costs better, requiring lower interest rates and allowing smaller yield on the gross portfolio. In addition, we show that the intrinsic characteristics of the MFIs account for the majority of the variance from the four outcomes.

Suggested Citation

  • Rodrigo de Oliveira Leite & Layla dos Santos Mendes & Luiz Claudio Sacramento, 2019. "To profit or not to profit? Assessing financial sustainability outcomes of microfinance institutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(3), pages 1287-1299, July.
    • Handle: RePEc:wly:ijfiec:v:24:y:2019:i:3:p:1287-1299
    DOI: 10.1002/ijfe.1718
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    Cited by:

    1. Mendes, Layla dos Santos & Leite, Rodrigo de Oliveira & Fajardo, José, 2022. "Do contingent convertible bonds reduce systemic risk?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 78(C).
    2. Rodrigo de Oliveira Leite & Layla dos Santos Mendes & Roberto Tommasetti & Vinicius Mothe Maia & Rodrigo Soto Larrain, 2022. "The Role of Motivated Financial Institutions on Community Currencies Loans," IJFS, MDPI, vol. 10(4), pages 1-10, October.
    3. Rodrigo de O. Leite & Jamil Civitarese, 2019. "Microfinance for women: Are there economic reasons? Evidence from Latin America," Economics Bulletin, AccessEcon, vol. 39(1), pages 571-580.
    4. de Oliveira Leite, Rodrigo & dos Santos Mendes, Layla & de Lacerda Moreira, Rafael, 2020. "Profit status of microfinance institutions and incentives for earnings management," Research in International Business and Finance, Elsevier, vol. 54(C).
    5. Francis Lwesya & Adam Beni Swebe Mwakalobo, 2023. "Frontiers in microfinance research for small and medium enterprises (SMEs) and microfinance institutions (MFIs): a bibliometric analysis," Future Business Journal, Springer, vol. 9(1), pages 1-18, December.
    6. Leite, Rodrigo & Mendes, Layla & Camelo, Emmanuel, 2024. "Innovating microcredit: how fintechs change the field," Journal of Economics and Business, Elsevier, vol. 128(C).
    7. 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.
    8. Sunil Sangwan & Narayan Chandra Nayak & Sweta Sen & Vikas Sangwan, 2023. "Does firm size affect client targeting? An investigation over the clients of the Indian Microfinance Institutions," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.
    9. Adnan Ali & Suresh Ramakrishnan & Faisal Faisal & Zahir Ullah, 2023. "Bibliometric analysis of global research trends on microfinance institutions and microfinance: Suggesting new research agendas," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 3552-3573, October.

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