Measuring the Performance of Microfinance Institutions

Abstract

Measuring the performance of microfinance institutions (MFIs) is not a trivial task. Indeed, looking at the financial sustainability of an MFI only gives one feature of its performance. As many MFIs primarily exist in order to help the poorest people, one also has to include aspects of outreach in their performance. Hence, MFIs' performance can be termed multidimensional.

This paper illustrates how some statistical tools can offer new insights in the context of MFIs' performance evaluation. Factor analysis is used in a first step to construct performance indices based on several possible associations of variables without posing too many a priori restrictions. The base variables are thus combined to produce different factors, each one representing a distinct dimension of performance. We then use the individual scores ascribed to each MFI on each factor as the dependent variables of a simultaneous-equations model and present new evidence on the determinants of MFIs' performance.

Keywords: Microfinance, Outreach, Self-sustainability, Factor analysis

JEL Classification: O12, O16, G21, C35