The State of Microcredit: Outreach, Profitability, and Poverty (Paper)

What factors affect a microfinance institution's outreach and profitability?
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This paper studies the state of microfinance, drawing from a database of 2600 MFIs, and focuses on outreach, profitability and poverty. The paper used data from the Microcredit Summit (MCS) database, the Mix Market (MM) database and the MicroBanking Bulletin database. The paper recognizes that the data covers only a sub-set of poor people's finance and contains little information about savings services. It examines the MFI industry’s outreach, geographic distribution, penetration rates, profitability and client poverty. Its findings include:

  • Governments continue to be the major providers of microcredit;
  • Private microfinance is profitable and stable enough to move into the mainstream financial system;
  • Microfinance is not dominated by non-government organizations (NGOs) - NGOs account for only a quarter of borrowers;
  • NGOs may play a more substantial role in the long-term;
  • MFIs that have not become profitable at an early stage should realize that growth by itself will not make them profitable.

The paper concludes that while government microcredit programs incur losses private microfinance can sustain itself. While the data is subject to important limitations, there is no indication so far that serving poorer customers tends to hurt financial performance seriously.

About this Publication

By Gonzalez, A. & Rosenberg, R.