The State of Microfinance - Outreach, Profitability and Poverty: Findings from a Database of 2300 Microfinance Institutions

Abstract:     
What factors affect a microfinance institution’s outreach and profitability?

This document studies the state of microfinance, drawing from a database of 2600 microfinance institutions (MFIs), and focuses on outreach, profitability and poverty.

The paper presents the following sources of its data:
The Microcredit Summit (MCS) database;
The Mix Market (MM) database;
The MicroBanking Bulletin database.

It also presents the following limitations of the database:
Covers only a sub-set of poor people’s finance;
Contains little information about savings services.

The paper examines the following aspects of:
Outreach:
Geographic distribution; Distribution by institutional type; Growth in total borrowers; Penetration rates and concentration.

Profitability:
Industry profitability; MFIs versus commercial banks; Profitability and growth; Years to break even.

Profitability and client poverty: Loan size and client poverty; Loan size and profitability; Percentage of very poor clients and profitability.

The paper concludes that:
Governments continue to be the major providers of microcredit;
Private microfinance is profitable and stable enough to move into the mainstream financial system;
Microfinance is not dominated by non-government organizations (NGOs) - NGOs account for only a quarter of borrowers;
NGOs may play a more substantial role in the long-term;
MFIs that have not become profitable at an early stage should realize that growth by itself will not make them profitable;
There is no indication that serving poor customers hurts financial performance.

Number of Pages in PDF File: 7

Keywords: Microfinance, outreach, sustainability, profitability, poverty

working papers series