Measuring microfinance performance

Abstract

MFIs are measured according to two dimensions. One is their outreach to poor people, that is, their ability to provide poor families access to financial services. This is the MFIs’ social mission. The other dimension is their financial sustainability, that is, their ability to pay their employees, lenders, and other suppliers, in short, their ability to produce a profit from their operations. We set out the main microfinance measures and confirm earlier findings that profitability is rather weak in microfinance, and that operational costs constitute a large part of the total costs. We argue that researchers should put more efforts into identifying the MFI’s cost drivers because social outreach is related to high costs and thus difficult to upheld as competition in the industry hardens.