Is There a Tradeoff between Outreach and Sustainability of Micro finance institutions? Evidence from Indian Microfinance Institutions (MFIs)

Abstract

There has been an argument in literature that the more Micro finance institutions (MFIs) aim for financial sustainability the less will be the impact on poverty reduction and hence, there is a tradeoff between outreach to the poor and financial sustainability. As part of empirical evidence on the ongoing debate, the paper has tried to examine a tradeoff between outreach to the poor and financial sustainability based on the recent (2009) data on 85 Indian MFIs using correlation matrix. In this regard, the finding of this study does not support a tradeoff between outreach and financial sustainability more specifically the simple correlation between average loan size (proxy to depth of outreach) and operational sustainability is found to be weak. Furthermore, the correlation between number of women borrowers (alternative proxy to outreach) and operational sustainability is also very weak. However, the study revealed that there is a strong positive correlation between the number of active borrowers (breadth of outreach) and operational sustainability.

Key Words: Outreach, Sustainability, Tradeoff, Correlation, Indian MFIs.