The Impact of Social Outreach on the Financial Performance of Microfinance Providers in Pakistan

Abstract

Microfinance, the tool for poverty alleviation had gone through a paradigm shift as a result of the wave of commercialization of microfinance providers. Increased focus to financial goals and the dreaded trade-off from the pursuance of social outreach goals could force microfinance service providers (MFPs) to the mission drift. To solve the entangled puzzle of mutuality between the social outreach and financial performance of MFPs in Pakistan, this study empirically analyses the impact of outreach on financial performance of MFPs in Pakistan by using a sample of 38 MFPs for the period of 1998-2014. Results suggest that there is significant and positive association between depth of outreach and financial performance. The empirical evidence signaled no trade-off between depth of outreach and financial performance. Results showed the achievement of dual mission for MFPs is possible, as the depth of outreach had a significant positive effect on the financial performance of MFPs in the context of Pakistan. Findings remain consistent by using alternative proxies of financial performance.

Keywords: Microfinance, Financial Performance, Outreach, Mission drift, Trade-off, Panel data

DOI: 10.7176/EJBM/11-31-08

Publication date: November 30^th 2019