Financial Performance and Outreach: A Global Analysis of Leading Microbanks
World Bank - Development Research Group (DECRG)
World Bank - Development Research Group; World Bank
New York University (NYU) - Robert F. Wagner Graduate School of Public Service; New York University (NYU) - Department of Economics
Economic Journal, Vol. 117, No. 517, pp. F107-F133, February 2007
Microfinance promises to reduce poverty by employing profit-making banking practices in low-income communities. Many microfinance institutions have secured high loan repayment rates but, so far, relatively few earn profits. We examine why this promise remains unmet. We explore patterns of profitability, loan repayment, and cost reduction with unusually high-quality data on 124 institutions in 49 countries. The evidence shows the possibility of earning profits while serving the poor, but a trade-off emerges between profitability and serving the poorest. Raising fees to very high levels does not ensure greater profitability and the benefits of cost-cutting diminish when serving better-off customers.
Number of Pages in PDF File: 27
Date posted: April 3, 2007