Examining Outreach and Sustainability as Performance Measures of Microfinance Institutions in Ghana

Abstract

ABSTRACT The microfinance movement has received enthusiasm as a poverty alleviation tool that has the potential to become a self-sustaining industry. However, in the 1990s, a debate emerged regarding the possibilities of achieving this promise. While some argue that microfinance institutions (MFIs) should reduce their dependency on donors by becoming self-sustaining to serve large numbers of poor people, others fear that a profit-seeking approach will result in poor clients being discarded. The debate still remains unsettled, and the aim of this thesis is to shed light on this on-going debate by studying whether outreach and sustainability, as measures of performance in MFIs in Ghana. An unbalanced annual panel data of 57 microfinance institutions in Ghana was analysed over a period of 2006-2012, using the generalised least squares technique to estimate random effect regression model for the sustainability model (OSS) and then an ordered logistic regression for the outreach model. The panel data for the study collected from the Microfinance Information Exchange (MIX) database being housed by the World Bank. The results from the first model indicate that all the variables except cost on loan disbursed were significant in affecting sustainability. Like expected, all the variables followed the expected signs. For the second model except NPM, WP and AGE (Young) all the other variables were significant. The study recommends that MFIs should keep their debt-equity ratio and cost on loans disbursed as low as possible to generate enough revenue to ensure sustainability without resorting to subsidies from parent organizations or donors.