Financial Performance and Outreach: A Global Analysis of Leading Microbanks

27 Pages Posted: 3 Apr 2007  

Robert Cull

World Bank - Development Research Group (DECRG)

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service; New York University (NYU) - Department of Economics

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Abstract

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.

Suggested Citation

Cull, Robert and Demirgüç-Kunt, Asli and Morduch, Jonathan, Financial Performance and Outreach: A Global Analysis of Leading Microbanks. Economic Journal, Vol. 117, No. 517, pp. F107-F133, February 2007. Available at SSRN: https://ssrn.com/abstract=976775 or http://dx.doi.org/10.1111/j.1468-0297.2007.02017.x

Robert Cull (Contact Author)

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-473-6365 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/rcull

Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Jonathan Morduch

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

The Puck Building
295 Lafayette Street, Second Floor
New York, NY 10012
United States
(212) 998-7515 (Phone)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

HOME PAGE: http://www.nyu.edu/projects/morduch

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