Evolution, Collapse and Financial Sustainability of MFIs and Their Beneficiaries

Abstract

Microfinance, since its’ formal discovery in the 1970s, has received global recommendation for its’ invaluable contribution towards poverty alleviation and financial inclusion.  This research paper seeks to find out if Contemporary Microfinance Institutions (CMFIs) and their beneficiaries can achieve self-financial sustainability when weaned off assistance. The research uncovered that all CMFIs have self-financial sustainability motive, however the few that have achieved this goal  or shown a clear path of attaining it, are regulated and have been noted of applying good financial management practices (cost efficient services) and best operational methodologies. Thus they have appropriate interest rate above that of the conventional banks and flexible terms of repayment, exclusive products for the poor, institutional control systems, good risk management systems, human resource and client’s capacity building and group lending (Sara, EK, 2011). Findings on the beneficiaries’ financial sustainability revealed mixed reactions; whereas some beneficiaries shown clear signs of financial sustainability when weaned off credit, others were worse off after receiving MFIs credit or indicated consistent dependency on credit. However it was clear that those who attained or have shown signs of financial sustainability were operating with regulated MFIs whereas the later either misappropriated the credit or were operating with unregulated MFIs.

Key Words: Microfinance, Microfinance Institutions/ Contemporary Microfinance Institutions, Depth outreach, self-financial sustainability/sufficiency/independence