Determinants of Financial Self Sufficiency of Andhra Pradesh Microfinance Institutions

Abstract

Schafer and Fukasawa in this paper titled "Factors determining operational self sufficiency among Microfinance institutions" investigate about the factors affecting operational self sufficiency of MFIs [4]. The empirical investigation is based on the data of 1,000 MFIs retrieved from MIX market for the year 2006 and 2008 scattered in different part of the world. Their empirical findings by multiple regression analysis revealed that number of borrowers, write off ratio were found to be important determinants of operational self sufficiency. Moreover, there was no significant difference in 2006 before the worldwide financial crisis and in 2008.Zerai and Rani examined technical efficiency of Ethiopian micro finance institution (MFIs) by utilizing data of 19 micro finance institutions taken from mix market with the help of stochastic frontier analysis [5]. The findings of the study revealed that average efficiency score of 71.72% of Ethiopian MFIs. Assets, operational sustainability, depth of outreach have significant impact on efficiency. The empirical findings confirm tradeoff between efficiency and outreach of Ethiopian MFIs.Cull, Demirgüc-Kunt and Morduch examines by using dataset of 245 microfinance Institution effect of prudential supervision on MFI profitably outreach to small scale borrowers and women [6]. Their finding suggest that profit oriented micro finance institution respond to supervision by maintaining profit rates and but at the cost outreach to women and poor client that are costly to reach. Their empirical finding shows that supervision has a negative effect on outreach, because supervision is positively related with average loan balance while it is negatively related with the percentage of women borrowers. Keywords: Financial sustainability; Microfinance institutions; Microfinance crisis Introduction and IssuesMicrofinance institutions (MFIs) have proved to be very important in growth and development of a country. MFIs enhance financial deepening in an economy thereby contributing to an economy's development by providing financial services to the extremely poor section of society. Nowadays, MFIs face challenge of sustainability and outreach. There has been increased pressure on MFIs to decrease dependence on donations, grants and subsidized funding. As providing Microfinance services is a costly business due to high transaction and information cost. At presents, large number of Microfinance programs is still depending on donors, grants and donations which mean that MFIs are not financially sustainable. In 1990s, the issue of sustainability of MFIs gave rise to important debate between financial system approach and poverty lending approach (Robinson, 2001) [1].According to the report of Deutsche bank (2007) only 1-2% of MFIs in the world are financially sustainable [2]. 8% of all MFIs are close to being profitable. 70% of all MFIs are heavily dependent on subsidy. Microfinance in India has grown at tremendous pace in recent years, achieving significant outreach amongst the poor household across t...

Financial Sustainability and Corporate Social Responsibility Under Mediating Effect of Operational Self-Sustainability

“…Hypothesis 3 illustrates the relationship between OSS and Financial sufficiency in the Microfinance sector of Pakistan. OSS was strongly positively associated with Financial sustainability in many prior studies both in developed and developing economies (Adongo and Stork, 2006;Rai et al, 2010;Schäfer and Fukasawa, 2011;Rai and Rai, 2012;Beg, 2016;Esampally and Joshi, 2016;Naz et al, 2019). The current study results are consistent with prior studies except for Cochran and Wood (1984), where a weak correlation was found between CSR-FP.…”

“…Operational self-sufficiency is expressed in percentage and shows whether MFI covers operating cost, financial cost, and loan losses, and is achieved if it is more than 100 percent (Esampally and Joshi, 2016). OSS can be found by reducing cost or increasing revenues (Adongo and Stork, 2006;Schäfer and Fukasawa, 2011;Beg, 2016).…”

“…The financial sustainability in MFIs can be obtained through the gaining of operational self-sufficiency in the long term, which reduces cost and increases efficiency (Adongo and Stork, 2006;Balkenhol, 2007;Rai et al, 2010;Rai and Rai, 2012;Hamad and Duman, 2013;Velnamby and Alagathurai, 2014;Balagobei, 2016;Beg, 2016;Esampally and Joshi, 2016;Lensink et al, 2018). Khan and Sulaiman (2015) reported the inefficiency of MFIs in operating cost and loan officers and optimal use of financial assets.…”

“…Corporate Social Responsibility was directly tested with Financial performance in many prior studies (Adongo and Stork, 2006;Balkenhol, 2007;Rai et al, 2010;Rai and Rai, 2012;Hamad and Duman, 2013;Velnamby and Alagathurai, 2014;Balagobei, 2016;Beg, 2016;Esampally and Joshi, 2016;Lensink et al, 2018) but operational self-sustainability is the critical variable in the Microfinance sector. OSS's role cannot be ignored as the literature depicts that an MFI is financially viable if its operational cost is less than its operating income, whereas, CSR increases the operational expenses and decreases the profitability of the firm.…”

Capital structure and financial sustainability of Microfinance Institutions (MFIs) in Rwanda

“…The computation of self-sufficiency ratio uses adjusted amounts for both revenue and costs as it is assumed that MFI raises funds from financial markets (Bayai, 2017;Bogan, 2012;Fersi&Boujelbéne, 2017;Fersi&Aziakpono, 2015). Beg (2016) argues that the financial self-sufficiency ratio reflects the financial sustainability better than the return on equity or the return on assets. The ratio is calculated as follows (Rosenburg, 2009):…”