Empirical Findings on Cognitive Dissonance around Microfinance Outreach and Sustainability

This paper presents an empirical assessment of microfinance commercialization factors to probe the cognitive dissonance regarding microfinance outreach and sustainability.

The study is based on literature review and analysis of data from 33 MFIs in East Africa. The key findings of the study are:

• Microfinance age has no significant influence on depth or breadth of outreach;
• Older MFIs may be able to provide lower average loans;
• Microfinance competition negatively affects depth of outreach;
• Operating expense to loan portfolio relationship with average loan is negative;
• Depth of outreach is negatively affected by cost per borrower;
• Regulations may have inverse relationship with breadth of outreach;
• Coefficient for the ROA variable may have negative relationship with average loan;
• Breadth of outreach has negative relationship with average loan.

The study suggests partial subsidization of MFI operating costs to deepen outreach. It cautions that competition should be gradual and should not be the primary objective of MFIs.