Does commercialization of microfinance institutions result in wider outreach?
Date
2007-04-04
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Abstract
This study addresses the question: does the transformation of a microfinance NGO into a commercialized financial institution affect positively its sustainability and, more importantly, its outreach? Using data taken from the financial statements of the four large-scale microfinance NGOs in the Philippines, we find that transformation effectively increases the sustainability of the NGOs through more cost-effective operations, thus greater capacity to serve poor clients (borrowers). This seems evident by comparing the performance of transformed NGOs vis-a-vis the untransformed ones. Regression analyses substantiate the positive aspects of sustainability and capacity for broader outreach. However, transformation by itself is not a guarantee for maximum outreach to the poor. Commercialization must be accompanied by an environment conducive to the micro finance industry's stability and growth.
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Keywords
Commercialization, Mircrofinance, Finance, Financial industry, Financial institution