Cost Structure and Financial Sustainability of Microfinance Institutions: The Potential Effects of Interest Rate Cap in Bangladesh

Examination of 216 MFIs to determine the likelihood of achieving sustainability

This paper examined the cost structures of 216 MFIs in Bangladesh with a view to determine whether the country’s MFIs will be able to achieve financial sustainability given the newly introduced interest rate cap. The study measured financial sustainability through Return on Assets (ROA) and Operational Self Sufficiency (OSS). The results suggest that there are two key factors that are significantly related to financial sustainability: interest rate spread and general administrative costs. The authors conclude that MFIs that have lower proportions of administrative costs and a large interest rate spread are more likely to achieve financial sustainability even with the newly introduced interest cap.