WP 56|13 Financial sustainability and outreach of microfinance institutions in Ethiopia: does organizational form matter?

Research Area: Economic theory
Edited by: Kindie Getnet, Carlo Borzaga

In places where credit markets are inefficient, attaining financial sustainability while serving the poor depends largely on the ability of lenders to overcome the costs of market contracts and constraints. Such ability of cost containment often varies by lending terms and organizational forms. Using disaggregated data of microfinance providers in Ethiopia, we compared financial cooperatives and specialized or non-bank microfinance institutions on their outreach, financial performance and ability to achieve financial self-sufficiency together with outreach to the poor. The results show that non-bank microfinance providers perform relatively well in terms of breadth and depth of outreach, but face higher cost, which creates tension between outreach and financial sustainability. In contrast, there exists a positive complementarity between outreach and financial viability for financial cooperatives.

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