The impact of scale of operation on financial performance in microfinance

Ngo, Trong Vi; Mullineux, Andy; Ly, Anh Hoang

doi:10.1007/s40822-014-0011-4

Cited by 17 publications

(10 citation statements)

References 23 publications

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“…MFIs need to convert from credit-only NGOs into regulated MFIs in order to provide other financial services to their clients. Consistent with the previous findings, this conversion allows MFIs take on more debts, especially savings, as well as to offer a greater basket of products and services (Cull et al, 2007(Cull et al, , 2011Hermes et al, 2011;Zerai & Rani, 2012;Ngo et al, 2014;Nurmakhanova et al, 2015). Due to the causal relationship between sustainability and outreach, sustainable MFIs tend to serve the large majority of borrowers, since on average they are much larger than unsustainable ones.…”

Section: Modelssupporting

confidence: 71%

“…Therefore, MFIs need to achieve a significant scale of operation and degree of sustainability before becoming regulated and profitable. Large MFIs are cost efficient, since they tend to pay more attention to the purposes of loans and to provide sufficient loan sizes to the appropriate borrowers on a commercial basis (Ngo et al, 2014).…”

Section: Trade-off Between Sustainability and Outreachmentioning

confidence: 99%

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Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Ngo¹

2015

IJEF

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There is a widespread belief that providing access to financial services (microfinance) or reaching the poor with microcredit are perfect solutions to establish a sustainable economy or to help kick-start a bottom-up recovery and social development animated by the poor themselves through self-employment and microenterprises. Microfinance has therefore become an important instrument for poverty alleviation and for improving the welfare of the poor in both developing and transition economies. Due to the difficulty of targeting the poor, who have a lack of collateral, microfinance institutions (MFIs) are called on to achieve a balance between social impact (poverty reduction) and positive financial performance. This paper assumes that the financial objectives of MFIs operate in opposition to each other and that a trade-off is inevitable. Unbalanced panel data of MFIs for the period 1995-2013 has been extracted from the MIX Market website. In order to solve the endogeneity problem, this paper employed the dynamic system GMM (generalized method of moments) of Blundell and Bond (1998) that is considered as the new methodology currently in use in the empirical investigation of the financial performance in banking and finance. This paper outlines some of the parameters that affect the nature of trade-offs and complementarities between social and financial objectives in microfinance performance, and provides empirical evidence from cross-country analysis. Sustainability has a positive link with outreach. MFIs tend to expand their outreach in order to achieve sustainability, based on the advantages of the economies of scale. However, a threshold which makes the trade-offs or complementarities between financial and social objectives reverse if it goes beyond a certain point is also observed.

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Section: Modelssupporting

confidence: 71%

Section: Trade-off Between Sustainability and Outreachmentioning

confidence: 99%

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Ngo¹

2015

IJEF

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“…Further, the extent of social efficiency is also higher for large MFIs relative to their counterparts. This is mainly because the large MFIs tend to have greater and cheaper access to outside financing, and may take on more debts to generate greater revenues than expenses (Ngo et al, 2014). Consistent with Hartarska et al (2013) and Ngo et al (2014), we suggest that smaller MFIs in India can generate sizable cost savings and profits through growth or consolidation.…”

Section: Efficiency Differences Across Size Groupssupporting

confidence: 61%

“…This is mainly because the large MFIs tend to have greater and cheaper access to outside financing, and may take on more debts to generate greater revenues than expenses (Ngo et al, 2014). Consistent with Hartarska et al (2013) and Ngo et al (2014), we suggest that smaller MFIs in India can generate sizable cost savings and profits through growth or consolidation. The pair-wise differences in the FE, SE and OE levels across large vs. very small, medium vs. very small, and small vs. very small are statistically significant (Table 12).…”

Section: Efficiency Differences Across Size Groupssupporting

confidence: 61%

Assessment of efficiency and ranking of microfinance institutions in India: a two-stage bootstrap DEA analysis

Khan

Gulati

2019

IJBFMI

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This paper examines the financial, social and overall bias-corrected efficiencies of 82 Indian microfinance institutions for the year 2015-2016, and obtains the potential determinants of efficiency scores using double bootstrap procedure by Simar and Wilson (2007). Bias-corrected efficiency scores are used to provide a strict ranking to sampled MFIs. An attempt is made to resolve the unsettled debate on trade-off between the dual goals of the MFIs. The results reveal that Indian MFIs are found more financially efficient than socially efficient in the sampled year. The efficiency differences across the MFIs' operating in central and northern regions and distinct sizes classes of MFIs are statistically significant. The study establishes enough evidence to advocate the absence of trade-off in achieving dual goals in the Indian MFI industry in the year 2015-2016. Finally, size of MFI and equity to assets ratio influences the efficiency levels of Indian MFIs.

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“…Researchers such as Pati (2012), Mersland and Strom (2009), Cull et al (2007), Honohan (2004), Ayayi and Sene (2010), and Ngo et al (2014) have used other micro-institutional variables such as firm size, expenditure control, mode of governance of MFIs and loan portfolio status to explain financial sustainability. Nurmakhanova, Kretzschmar, and Fedhila (2015) examined the trade-off between financial sustainability and outreach of MFIs using data set comprised of 1347 observations for 450 MFIs across 71 countries over a period [2006][2007][2008].…”

Section: Review Of Empirical Evidence Of Factors Influencing Mfis Susmentioning

confidence: 99%

Evaluation of Factors Influencing the Sustainability and Outreach of Microfinance Institutions in Northern Ghana

2019

RJFA

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The study examined the factors that influenced the sustainability and outreach of microfinance institutions in northern Ghana from the view point of managers and operation staff of microfinance institutions. Methodology: Questionnaires were administered to a sample of 181 managers and operation staff of 18 microfinance institutions in northern Ghana. Purposive and convenience sampling techniques were used. Data was analysed using Spearman multiple correlations. Findings: The study found: a positive statistically significant relationship between capital structure and financial sustainability in northern Ghana, failed to uncover any statistically significant relationship between capital structure and outreach, failed to find statistically significant relationship between financial sustainability and outreach levels in northern Ghana, find a positive statistically significant relationship between capital structure, financial sustainability and outreach in northern Ghana. Originality: The study adds to the literature on microfinance sustainability and outreach and in particular the Ghanaian context. Limitation: The study is limited to only microfinance institutions operating in northern Ghana and the perceptions of finance professionals. The study suggests consideration of the entire regions of Ghana and the usage of actual loan data of microfinance institutions.

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The impact of scale of operation on financial performance in microfinance

Cited by 17 publications

References 23 publications

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Microfinance Complementarity and Trade-Off between Financial Performance and Social Impact

Assessment of efficiency and ranking of microfinance institutions in India: a two-stage bootstrap DEA analysis

Evaluation of Factors Influencing the Sustainability and Outreach of Microfinance Institutions in Northern Ghana

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