Case study

Are Profitable Microfinance Programs Less Efficient at Reaching the Poor? A Case Study in Cambodia

Exploring the relationship between financial efficiency and social efficiency of Cambodian MFIs
Download 37 pages

This case study investigates the social and financial efficiency of MFIs in Cambodia to determine whether more profitable MFIs are less efficient in achieving social outcomes. The paper explores social impact relative to its cost and compares it to profitability. The study notes that Cambodian MFIs are becoming less socially efficient over time, while their profitability has been increasing. This could reflect mission drift as MFIs improve financial efficiency but focus less on serving the most number of clients possible. The study applies Data Envelopment Analysis (DEA) to 14 MFIs. Findings include:

  • Financially efficient, for-profit MFIs are as efficient at reaching the poor as non-profit ones;
  • Financially efficient MFIs can simultaneously be efficient in achieving social goals;
  • Profit focused MFIs in emerging markets can target social objectives without sacrificing profitability;
  • Larger MFIs appear more efficient at reaching the poor while smaller MFIs are more profitable.

Mission drift represents a risk to microfinance as the industry becomes increasingly market driven. Study findings suggest that financial and social objectives are not mutually exclusive but stakeholders should ensure that social outcomes are maintained.