Microfinance institutions fostering sustainable development

Abstract

The microfinance sector is considered an important contributor to the expansion of formal financial systems. It plays a significant role in sustainable development. Microfinance institutions (MFIs) as key actors in the microfinance sector require an organizational management framework that facilitates sustainable growth. The objective of this study is to define a balanced MFI sustainability approach that considers financial, environmental, social and governance dimensions as equally important. Through a clustering process, this research establishes the relationship between the various sustainability indicators provided by MixMarket, and it determines different MFI sustainability profiles. This research uses the Kruskal–Wallis method to characterize each group based on outreach, financial and risk indicators. The results show that there is no balance between the different sustainability areas, and lead to the conclusion that it is necessary to promote an integrative approach to foster sustainability management practices in the microfinance industry.

Evaluating the Sustainability of Microfinance Institutions Considering Macro-Environmental Factors: A Cross-Country Study

“…Given the character of MFIs, in early studies, the sustainability definition regarding MFIs differs from the one mentioned above [1,4]. For example, Navajas et al [30] defined the sustainability of MFIs as the permanence of ongoing financial services to "unbankable poor and small businesses".…”

“…In recent years, in addition to social and financial sustainability, more and more studies have paid attention to the environmental sustainability of MFIs [13,14], focusing on green environment performance [32]. For example, Garcia-Perez et al [4] analyzed the sustainability definition of MFIs from economic, social, and environmental perspectives. However, a financially sustainable MFI is required in order to realize its social and environmental sustainability [15].…”

“…Cull et al [31] demonstrated that sustainable MFIs could concurrently maintain profitability and outreach. The sustainability definitions of MFIs above have focused their attention on two pillars: financial sustainability and social sustainability [4,5]. The former emphasizes the financial self-sufficiency of MFIs and the importance of reduced reliance on donor funds [6,12], the latter the social outreach of MFIs.…”

“…Various strategies and tools have been proposed to address this severe and serious issue [3]. Among these strategies and tools, the microfinance institution (MFI), which distinguishes itself from traditional financial institutions, such as the commercial bank, by operating small loans to "unbankable poor people and small businesses" [4], is not only considered an effective way for the poor to manage their finances and take advantage of economic opportunities while managing risks, but also an important way to promote economic development, employment and growth, through the financial support of small businesses. The MFI has attracted tremendous interest from both practitioners and academic researchers for its significant role in poverty reduction, by bridging the gap between formal financial institutions and low-income groups or individuals [5].…”

“…However, given the features of MFIs [7,8], the definition of sustainability is a little different in the early related literature [1]. The sustainability definition of MFIs has focused on two pillars [4,5]. One is financial (economic) sustainability.…”