The Financial Sustainability of Micro-Finance Institutions in Sub-Saharan Africa

Master's Thesis , 2018 , 103 Pages , Grade: 90.0

Business economics - Investment and Finance

The aim of this study is to understand the factors that drive financial sustainability in microfinance institutions. To accomplish this, several indicators for operational self-sufficiency (OSS) were investigated through correlation and regression analysis. The results indicate that the drivers for operational self-sufficiency include return on assets, number of active borrowers and profit margin. The analysis also showed that in terms of OSS and profitability, there is little difference between for-profit and non-profit organizations. To increase operational self-sufficiency institutions should increase return on asserts, the number of active borrowers and their profit margin.

The results support the profit-incentive theory and the financial systems approach. These results indicate that to achieve financial sustainability MFIs should focus on covering operating expenses through earned revenues. Therefore, MFI structure should encourage cost-oriented management. Additionally, findings from this study revealed that there may not be a large tradeoff in efficiency and outreach. Results showed that operationally self-sufficient MFIs actually have a larger outreach than non-self-sufficient organizations. Limitations for this study include that the regression only explains the variables affecting OSS with 26 % certainty and other variables not tested may also be factors

Inhaltsverzeichnis (Table of Contents)

• 1 Introduction
• 1.1 Relevance
• 1.1.1 In Terms of Poverty Alleviation
• 1.1.2 In Terms of Subsidization
• 1.1.3 In Terms of Trade-Offs
• 1.2 Region of Focus: Sub-Saharan Africa
• 1.2.1 The Situation in Sub-Saharan Africa
• 1.2.2 Financial Inclusion in Sub-Saharan Africa
• 1.2.3 Microfinance in Sub-Saharan Africa
• 2. Literature Review
• 2.1 Microfinance Industry Overview
• 2.1.1 Defining Microfinance
• 2.1.2 Informal Lending as a Type of Microfinance
• 2.1.3 History of Microfinance
• 2.1.4 Current Developments in Microfinance
• 2.1.5 Greenfield Microfinance
• 2.2 Financial Sustainability
• 2.2.1 Financial Systems Approach
• 2.2.2 Indicators for Financial Sustainability
• 2.2.3 Results from Previous Studies
• 2.2.4 Financial Sustainability and Interest Rates
• 2.3 Outreach
• 2.3.1 Poverty Lending Approach
• 2.3.2 Findings from Previous Research
• 2.3.3 Outreach and Operating Costs
• 2.4 Business Models
• 2.4.1 Internal Business Practices for Financial Sustainability
• 2.4.2 Non-Financial Services
• 2.4.3 Operating Methodology
• 2.4.4 Benefits of Group Lending

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This study aims to understand the factors driving financial sustainability in microfinance institutions (MFIs) operating in Sub-Saharan Africa. The research examines various indicators of operational self-sufficiency (OSS) to identify key drivers of financial sustainability. This analysis investigates the relationship between OSS and profitability, exploring the differences between for-profit and non-profit organizations.

• Financial sustainability of microfinance institutions
• Drivers of operational self-sufficiency
• Relationship between profitability and OSS
• Impact of business models on financial sustainability
• Trade-off between efficiency and outreach

Zusammenfassung der Kapitel (Chapter Summaries)

• Chapter 1: Introduction This chapter introduces the topic of financial sustainability in microfinance institutions and its relevance to poverty alleviation, subsidization, and trade-offs. It also highlights the importance of focusing on Sub-Saharan Africa, outlining the challenges and opportunities for microfinance in the region.
• Chapter 2: Literature Review This chapter provides a comprehensive overview of the microfinance industry, including definitions, history, current developments, and business models. It examines various approaches to financial sustainability, including the financial systems approach, and analyzes key indicators for assessing OSS. The chapter further explores the relationship between outreach and operating costs, and discusses the role of internal business practices in achieving financial sustainability.

Schlüsselwörter (Keywords)

The main keywords and focus topics of this study include microfinance, operational self-sufficiency, financial sustainability, Sub-Saharan Africa, poverty alleviation, financial inclusion, outreach, business models, and profit-incentive theory. This research delves into the critical aspects of microfinance, examining factors driving financial sustainability and its impact on poverty reduction within the context of Sub-Saharan Africa.

• College: Cologne Business School Köln
• Grade: 90.0
• Author: Hanna Kattilakoski (Author)
• Publication Year: 2018
• Pages: 103
• Catalog Number: V594215
• ISBN (eBook): 9783346219473
• ISBN (Book): 9783346219480
• Language: English
• Tags: microfinance, micro-finance, finance, financial sustainability, micro loans, micro lending, poverty alleviation