Subsidies and Financial Performances of the Microfinance Institutions: Does Management Matter?

This paper assesses the impact of the management of microfinance institutions (MFIs) on:

• Financial performances;
• Amount of subsidies received.

The paper presents the management and governance issues in microfinance. It describes the following data considered for assessing the impact:

• Management dimensions:
  • Decision making;
  • Accounting and control;
  • Top management;
  • Human resource.
• Financial indicators:
  • Return on assets (ROA);
  • Adjusted return on assets (AROA);
  • Financial self sufficiency (FSS).

Discussing the results of the impact of management dimensions on the financial performances, the paper states that:

• With respect to the FSS and ROA, top management indicator is the best performer;
• For AROA, top management scores the highest, but difference with the other indicators is less compelling.

The paper analyzes the influence of the organizational structure of MFIs (cooperatives, for profit and non profit) on financial performance and states that the influence of:

• For profit status is:
  • Significant and with a positive sign to explain the ROA and AROA;
  • Not significant on the financial self sustainability ratio.
• The cooperative status has negative impact on the ROA.

Determining the management dimension influencing the amount of subsidies, the paper states that:

• MFIs with highly qualified board members attract subsidies;
• Daily management competence has no influence on amount of subsidies.

The paper concludes that more research is needed to assess the long term impact of management.