Financial Performance and Outreach: A Global Analysis of Leading Microbanks

By Robert J. Cull, Asli Demirgüç-Kunt, Jonathan Morduch. 2006

1,092 citations recorded by the source corpus.

Microfinance contracts have proven able to secure high rates of loan repayment in the face of limited liability and information asymmetries, but high repayment rates have not translated easily into profits for most microbanks. Profitability, though, is at the heart of the promise that microfinance can deliver poverty reduction while not relying on ongoing subsidy. The authors examine why this promise remains unmet for most institutions. Using a data set with unusually high quality financial information on 124 institutions in 49 countries, they explore the patterns of profitability, loan repayment, and cost reduction. The authors find that institutional design and orientation matter substantially. Lenders that do not use group-based methods to overcome incentive problems experience weaker portfolio quality and lower profit rates when interest rates are raised substantially. For these individual-based lenders, one key to achieving profitability is investing more heavily in staff costs-a finding consistent with the economics of information but contrary to the conventional wisdom that profitability is largely a function of minimizing cost.

Subfields: Accounting, Economics and Econometrics, Management Information Systems

View Paper: https://www.semanticscholar.org/paper/038de39f0d5997188114404769c33173841d6841

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Citations in the corpus

On mission drift in microfinance institutions (2011, neutral): “Using loan size as a proxy for the poverty level of clients, Cull et al. (2008) recent findings indicate that MFIs with the highest profit levels perform the weakest in terms of outreach.”
Focus on Women in Microfinance Institutions (2013, result): “This figure is similar to what is found in earlier literature (see, for example, Cull et al., 2007; Daley-Harris, 2007).”
Unsubsidized Microfinance Institutions (2013, neutral): “ization (Cull et al., 2007;Mersland, 2009).”
Performance and trade-offs in microfinance organisations--does ownership matter? (2008, background): “Furthermore, our results are in line with recent findings in Cull et al (2007) and Hartarska (2005).”
Access to Finance (2010, neutral): “Cull et al. (2007) use a dataset comprising 124 microfinance institutions across 49 countries to analyze MFI performance and outreach.”
Where does microfinance flourish? Microfinance institution performance in macroeconomic context (2011, neutral): “32 Small loans can be taken as a proxy for outreach to the poor (Cull et al., 2007), in which case loan-size growth could be interpreted as abandonment of social mission.”
Outreach and performance of microfinance institutions: a panel analysis (2015, background): “Cull et al. (2007) show evidence that MFIs can maintain depth of outreach and still remain profitable but they observe a tradeoff between profitability and outreach to the poorest.”
Women and Repayment in Microfinance: A Global Analysis (2011, result): “In this study’s data set, women represent 73% of microfinance customers, similar to figures reported in previous literature (e.g., Cull et al., 2007).”