Title: Does Capital Structure Aect the Financial Sustainability of Microfinance Institutions
Abstract: Millions of people in developing countries have been given access to formal financial services through microfinance programs. Nevertheless, millions of potential clients still remain unserved and the demand for financial services far exceeds the currently available supply. Given significant capital constraints, expansion of microfinance programs remains a formidable challenge facing the microfinance industry. Moreover, it is observed that microfinance organizations have had various degrees of sustainability. Recognizing the potential of microfinance in the development process, this paper examines the existing sources of funding for Microfinance Institutions (MFIs) by geographic region, and explores how changes in capital structure could facilitate future growth and improve the financial sustainability of MFIs. Using data from more than three hundred MFIs, we test the hypothesis that MFIs mature towards sustainability through a “life cycle” of institutional development. The empirical evidence fails to support interpretations of the life cycle approach that focus on MFI age as the deciding factor in sustainability but points to the importance of capital structure and funding instruments as key determinants of financial sustainability. (JEL O1, F3)
Publication Year: 2007
Publication Date: 2007-01-01
Language: en
Type: article
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Cited By Count: 20
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