Narrow Results

This paper examines the determinants of return on equity for microfinance institutions (MFI), an important source of funds for entrepreneurs in developing countries. Recent research indicates that MFIs need to become financially sustainable without relying on external funding. To meet this objective, MFIs have begun to look to the capital markets as a source of funds. Our findings indicate that investors in MFIs can look at measures similar to those used by traditional financial institutions, like commercial banks, such as operating expense and portfolio yield measures to measure possible performance of a MFI. MFIs that have a larger percentage of women borrowers fare better. Additionally, we find that country specific macroeconomic conditions affect MFI return.

Microfinance institutions (MFIs) have largely focused on urban markets, leaving the rural poor underserved. The high costs of serving rural markets has often been identified as the key impediment to serving these markets, resulting in saturation and heavy competition in urban markets while poor rural clients remain unserved. In this paper, we provide evidence from a sample of over 10,000 microfinance loans in Malawi, that the cost argument has an important flaw. Results show that client retention, a critical aspect of financial sustainability, is significantly higher in rural markets. In addition to being a key financial indicator in an industry where annual client exit rates can exceed 50 percent, client retention is also a key measure of social impact. By operating in rural markets, MFIs may be able to increase both social impact and financial performance.

China’s ambitious initiative to build infrastructure in dozens of countries along land and sea trade routes stretching from China to Africa and Europe is set to grow bigger than first envisaged in 2013. Added to the original overland Silk Road Economic Belt and the 21st Century Maritime Silk Road is the Polar Silk Road, now written into China’s Arctic Policy that was published in January 2018. The China-centric initiative also got itself written into the Chinese Communist Party’s constitution in October 2017, leading many outside China to view it as more than an economic plan to build infrastructure to facilitate trade and boost development in developing countries. Foreign observers see it also as a scheme to expand China’s influence overseas by binding other nations more closely to it economically. That there is demand for the infrastructure that the Chinese want to build is unquestionable — in Asia alone, to keep the economies humming, there is a need to invest US$1.7 trillion annually in infrastructure up till 2030. However, the security and financial risks of this venture are daunting to investors as the routes run through some of the riskiest countries in the world. The situation is not helped by suspicion over China’s intentions and concerns about the lack of transparency and whether tender processes meet international standards. China needs to listen to and allay the concerns of governments, corporations and international organizations to gain their support and participation in this project that is so massive it cannot pull off alone.

Although many economic, social, and environmental crises have occurred in the past, the recent novel coronavirus (COVID-19) disease is believed to have generated the most severe impact worldwide. Motivated by the lack of data from the global microfinance sector with respect to COVID-19, we have attempted to understand the effect of the pandemic on the microfinance industries through the lens of the 2007–2009 Global Financial Crisis (GFC). In so doing, global data of 2,995 microfinance institutions (MFIs) from 2000 to 2018 were analyzed, highlighting the effect of the GFC on the outreach and financial objectives of MFIs. Our assessment revealed that the GFC mostly had a negative impact on the dual goals of MFIs. Most importantly, the GFC triggered the transformation of the legal status of MFIs from Non-Governmental Organizations (NGOs) to other types (e.g., non-bank financial institutions). Similar outcomes are expected in the aftermath of the COVID-19 in the microfinance industries.

Numerous studies in the microfinance context have been observed to employ the data envelopment analysis (DEA) technique for the estimation of efficiency and/or productivity at the organizational level. This chapter aims to synthesize the existing DEA literature in the microfinance context to provide an overview of the methodological development over the past two decades and identify future research directions. To this end, literature data spanning the period 2006–2022 have been gathered from the Scopus database, and after filtering them based on inclusion and exclusion criteria, a total of 70 research articles relevant to this topic were considered for the study. With respect to methodological development, although most of the studies relied on the classical DEA, a recent trend revealed that studies are also employing various forms of network DEA (NDEA) techniques that integrate complex and multiple stages of the production process to help capture the diverse objectives of microfinance institutions. Furthermore, most studies utilize either regional or global data in their analysis of efficiency/productivity, with only a few exceptions. Lastly, bibliometric processing software (e.g., VOSViewer) is utilized for the identification of influential authors, institutions, networking, and countries. The study identifies important prospects for future research.

Bank Rakyat Indonesia (BRI) provides an example of large-scale rural microfinance banking services that are financially sustainable due to its commercial banking and capital self-sufficiency principles. BRI is also exceptional in the outreach of its microfinance services, with its 8.539 microoutlets in almost all sub-districts throughout Indonesia providing simple and flexible microfinance banking products that in 2015 served 43 million microsavers and 7.85 million microborrowers nationwide. This chapter gives a historical overview of BRI and its successful transformation from government-reliant towards commercial and capital self-sufficiency microfinance banking without overlooking its main mission in catering the rural poor population. The chapter shows how a well-managed microfinance banking system can weather economic crises and help the rural poor cope with economic shocks. The chapter also highlights some implications for the microfinance institutions, BRI in particular, as well as the government as the policy maker.