Should We Invest in Microcredit? A Financial Analysis of Microcredit from a USD-Investor's Perspective
This study assesses the profitability of microcredit by examining the financial performance of microlending organizations in less developed financial markets. It studies a sample of 24 MFIs worldwide for a period of nine years, examining the influence of organization-specific and environmental factors on the profitability of their loan portfolios. Study findings indicate that current microfinance organizations can offer investors a sensible return on their investment under certain conditions. Findings indicate that:
- Financial performance of individual microcredit institutions show striking differences;
- Organization-specific characteristics appear to be far more important for the financial performance of a microcredit agency than environmental forces;
- Organizations management and operational practices are more decisive for its success than national politics, which can provide some support;
- MFI-specific business experience and integrated execution of the chosen market strategy are key to financial profitability.
Observation by an external party has a positive effect on performance. Consequently, each MFI needs to be examined separately in order to qualify its future prospects. There can be very profitable MFIs in almost any country, but there can be tremendously inefficient ones too.
