Microfinancing Institutions (MFIs) have grown in popularity as an effective tool for reducing poverty in the developing countries over the last three decades. MFIs are different from traditional financial institutions like banks in many ways. They mainly provide financial assistance (usually without any security) to the needy poor who are denied access to institutional credit from other sources. Data relating to 2007 has shown that there are more than 3,000 MFIs operating around the world. Hundreds of millions of dollars of donor funds are injected into the microfinancing sector. Therefore, the 'performance' of MFIs which affect the effective and efficient utilization of these funds is an important issue. Standard criteria used to measure the performance of commercial enterprises such as profitability, return on investment, share price, etc., are not appropriate to assess the performance of MFIs which have fundamentally different objectives that conflict with commercial interests. This article analyzes the issues relating to criteria used for identifying the performance of MFIs and recommends a new approach to measure the performance of MFIs in an objective manner. JEL: G21

Purpose – The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of utilising these funds to alleviate poverty. The purpose of this paper is to develop models to predict the repayment success of microfinancing loans. Design/methodology/approach – Analysing data relating to 1,109 random loan records from Indonesia and Sri Lanka, the study develops models to predict the repayment probability of microfinancing loans using logistic regression. Findings – There are significant differences between the two countries. In Sri Lanka, the time to approve and disburse the loan, loan cycle, gender and age of the borrower, whether a group or individual borrower, the purpose for which the loan is used and visiting frequency by the loan officers were found to be significant when predicting the repayment. Only three factors were significant in Indonesia: time to approve and disburse the loan, interest repayment frequency and gender. Both models have over 70 per cent prediction accuracy. Originality/value – The models developed can be used in the loan appraisal stage to improve the repayment performance of microfinancing institutions saving hundreds of millions of dollars in bad debt write offs.

Purpose The purpose of this paper is to find the factors that affect the “performance” of microfinancing institutions (MFIs) around the world and to further analyse the interaction and higher order effects of these factors on the performance. Although MFIs can have various objectives from a commercial focus to a social focus when performing their operations, this study analyses the factors that contribute to “performance” of MFIs in relation to their ability to “alleviate poverty in a sustainable manner”. Design/methodology/approach Based on the data relating to 234 MFIs across 63 countries, this study analyses eight factors that can affect performance of MFIs (as defined in this study) and their higher order and interaction effects using multiple regression models. Findings The results show that gender (female), literacy level of the borrowers, operational efficiency, offering only loans (not diversifying), age and emphasis on profitability have a significant effect on the performance. Analysis of higher order effects shows that the relationship of age with performance is a downward concave curve and that with operational efficiency is an upward concave curve. The interaction effects of gender and literacy, age and emphasis on female borrowers, and also age and emphasis on profitability were found to be significant.k Originality/value The findings contribute to understanding the factors that affect the performance of MFIs to alleviate poverty in a sustainable manner and help the policy makers and managers of MFIs to improve their performance in this area. Considering the hundreds of millions of dollars injected into microfinancing, improvement in performance as a result of these findings can lead to savings in millions of dollars.

PurposeThe purpose of this research is to investigate the effect of operational efficiency, gender of the borrowers and the population density on the performance of microfinancing institutions that play a significant role in alleviating poverty in developing countries.Design/methodology/approachA model showing the relationships among the variables is first proposed based on the hypotheses developed in the literature review. Then the model is tested with empirical data using multiple regression and path analysis. Data used in the analysis relate to 234 microfinancing institutions across 63 countries.FindingsThe study finds that operational efficiency and gender of the borrowers have a direct impact on the performance of microfinancing institutions. Although population density does not have a direct impact on performance it has an indirect effect through operational efficiency and gender of the borrowers.Practical implicationsThe findings of this study reveal to the policy makers and managers of microfinancing institutions the importance of focussing on the three factors analysed (operational efficiency, gender of the borrowers and population density) to reduce poverty.Originality/valueThe study enhances the current knowledge in the literature relating to microfinancing. The findings help to improve the performance of microfinancing institutions resulting in efficient and effective utilisation of hundreds of millions of donor funds originating from tax payers in developed countries.

Microfinancing institutions (MFIs) are likely to change their management policies and focus more on profitability and product diversification as they mature and expand in size because of a number of reasons, including among them, donor pressure and/or lack of funding to expand. The present study empirically tests whether such changes occur in MFIs over time and how these changes affect their performance with regard to alleviating poverty. Using data from a sample of 234 MFIs from around the world, including in the Asia-Pacific region, the study analyses the relationships between age, size, product diversification and emphasis on profitability of MFIs and their impact on the performance in alleviating poverty. Multiple regression techniques and path analysis were used to test the above relationships. The main analysis was also repeated on MFIs in the Asia-Pacific region to assess the relevance of the findings of the main study to the Asia-Pacific region. Results of the main analysis comprising the 234 MFIs in the sample show that MFIs expand in size with age. As MFIs mature, they diversify to offer other services in addition to providing loans (product diversification). However, size acts as a mediating variable in this relationship. Ageing leads to more emphasis on profitability, which, in turn, leads to an