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This study explores the financial sustainability of microfinance institutions (MFIs) in the economic context to identify how macro-level economic decisions affect the micro-level decisions in the microfinance sector in South Asia. For that purpose, the data of 409 South Asian MFIs combined with the macroeconomic variables of respective countries are used over the period 1999–2017. The empirical analysis uses a fixed-effect model (FEM) to analyse the unbalance panel data of microfinance institutions and macroeconomic variables. We employ two-stage least squares (2SLS) model for robustness and System Generalized Method of Moment (GMM) to address the potential endogeneity and over-identification bias. The results reveal that economic indicators such as foreign investment, human development, inflation, interest rate, private credit, and labour force participation have negatively influenced financial sustainability except for the GDP growth. The overall economic results seem imperative from the good-governance perspective of MFIs. Besides, the government and microfinance policymakers need to give due consideration to the macro-level economic decisions to achieve the financial sustainability of MFIs. JEL Classification: A12, G21, G28, O1, Q01

This study analyses the breadth and depth of outreach of microfinance institutions (MFIs) from the economic perspective, considering both open and close economic indicators.  Additionally, this study differentiates the impact of the welfare variable (human development) on breadth and depth of outreach of microfinance institutions in the South Asian region. We use Market-Mix data from the year 1999 to 2017. For analysis, we employed a fixed-effect model based on the Hausman test. Additionally, two-stage least squares used to identify the endogeneity problem. The results illustrate the positive impact of welfare indicator (Human development) and closed economic factors (Economic growth, private credit, labor force participation) on the depth of outreach except for the inflation and interest rate that are negatively impacted. Whereas, open economic factor (Foreign investment) does not impact on the depth of outreach. However, all sets of open, close, and welfare economic indicators positively impact on the breadth of outreach except the interest rate and inflation rate. It is concluded from the results that macroeconomic variables affect the depth of outreach of microfinance institutions. The government and microfinance policymakers can use economic indicators to increase further microfinance outreach that further helps in alleviating poverty from the region.