Exploring the Links Between Framework Conditions and Microfinance Institutions

This study uses a global sample of MFIs to assess the impact of external economic, political and institutional factors on MFI performance and outreach.

The paper examines panel data from 2004-2008 to estimate models of several dimensions of outreach and performance. Results suggest that:

• MFI achievements cannot be separated from the context in which they operate;
• Financial sector policies, level of competition and quality of public institutions affect MFI outcomes;
• Overall level of economic development is an important predictor of MFI outcomes;
• Costs, depth and breadth of outreach are the dimensions of outreach most influenced by contextual factors;
• Policies most likely to stimulate MFIs include general interventions aimed at improving institutional quality and more specific policies of financial sector development;
• MFIs are likely to specialize and follow a poverty approach as the financial sector in a country develops and competition increases;
• MFIs have larger focus on breadth of outreach and are more likely to follow the self-sustainability approach in a less developed financial sector context.

These results are important for understanding the role of MFIs in development and when comparing institutions across different contexts.