Financial Sustainability of Microfinance Institutions: A New Model Approach

Abstract

Millions of people in developing countries have been given access to formal financial services through microfinance programmes. 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. One such sustainability is the financial sustainability. Financial sustainability has been defined by various researchers differently. As such, there is no clear-cut definition of the word financial sustainability. The MIX Market and various other agencies like ACCION, Women's World Banking etc. define the term financial sustainability, but this term has not been defined lucidly. Therefore, this paper attempts to propose a more comprehensive and representative model for financial sustainability. This model of financial sustainability gives due weightage to some of the critical financial indicators like Portfolio at Risk, Loan loss, Borrowers per Credit Officers etc.