Dr Samia Mahmood

Faculty of Social SciencesDr Samia Mahmood

Samia completed her PhD in Finance from Birmingham City University. Her PhD work focused on evaluating the impact of microfinance on women’s entrepreneurship development in a developing country; and its contribution in women’s economic empowerment and well-being of the family. Samia has an extensive experience of teaching and supervising research projects in higher education.

Samia’s broad research interests include microfinance, SME credit, entrepreneurship development and women's economic empowerment. Moreover, she is particularly interested in research on the access to finance in developing countries for the enterprise development that can lead to the achievement of Millennium Development Goals.

Analysis of the performance of global microfinance institutions


Microfinance is provided to financially excluded, non-collateralised and marginalised sections of the population for entrepreneurial activity in developing as well as developed economies. Microfinance Institutions (MFIs) provide microfinance that not only includes microcredit but also some other facilities such as saving, insurance and entrepreneurship training to the borrowers. Microfinance is considered to be one of the most important developments for poverty reduction and also to promote economic growth by supporting micro-entrepreneurs and small business and generating employment. According to Mawa (2008), microfinance is related to Millennium Development Goals (MDG), first MGD ‘eradicate extreme poverty and hunger’ and third MDG ‘promote gender inequality and empower women’.

There are numerous studies on microfinance and its impact but results are contradictory, also there are few studies that cover the overall performance of MFIs. This study analyses the performance of global MFIs with recent year’s data. With the objective of poverty reduction it is challenging for MFIs to be self-sustainable and profitable. Therefore this study will also analyse any trade-off between outreach to poor and profitability and efficiency. This research will help in global policy formulation for poverty reduction and entrepreneurship development.

Literature Review:

Though many non-for-profit MFIs are working for the development of society, the efficiency and productivity of microfinance providers with outreach of their services to women borrower and poor people increasingly become an area of interest for researchers and policy makers. A broad study conducted by Cull et al (2007) with 124 MFIs from 1999 to 2002 concluded that the MFIs that focus on poorest borrowers have to face high cost and those MFIs that are profitable did not reach to the poorest borrowers. Hermes et al, (2011) study on the outreach and efficiency of 435 MFIs from 1997 to 2007 reported sacrificing outreach to women borrowers and poor by increasing the efficiency of MFIs.

In addition to these two comprehensive studies on worldwide MFIs many researchers focus on MFIs of different regions and developing countries. These researcher used various performance measures for MFIs such as the outreach and sustainability of MFIs (Haq et al. 2010; Arsyad, 2005; Zerai and Rani, 2012), outreach and financing structure of MFIs (Kar, 2012), outreach and financial performance (Rauf and Mahmood, 2009; Downey and Conroy, 2010; Hermes and Lensink, 2007); social and financial performance (Cull et al. 2009); competition, efficiency and financial performance (Assefa et al, 2010). A recent study on the female leadership and corporate governance of MFIs reported a positive impact of female Chief Executive Officer on MFI’s performance (StrØm et al. 2014).

Roy and Goswami, (2013) suggested eight different dimensions of performance measures for MFIs; these are efficiency, productivity, sustainability, outreach, financial, social, governance and institutional characteristics. They also suggested that previous studies covers only two or three performance dimensions of MFIs, therefore there is need to cover the performance of global MFIs from other dimensions. Moreover, microfinance performance studies give different results due to the difference in the sample size or time of study. The contradictory results of some studies and lack of studies on global MFI’s performance shows that this study is timely.

Data Collection and Methodological Approach

The proposed project is a quantitative study that used panel data analysis that is run on STATA. The secondary dataset of global MFIs is collected from MIXMARKET website-http://www.mixmarket.org that is publicly available database of worldwide MFIs. Data of 1330 MFIs from 2003 to 2013 of 108 countries are selected after data cleaning. Various dimensions of performance of MFI are used in this study such as outreach, risk/quality of portfolio, efficiency/productivity, profitability and sustainability

Outreach is defined in this study in terms of breadth of outreach that is how many numbers of clients are served by MFIs  (Assefa et al, 2010) and depth of outreach such as number of poor clients and percentage of female borrowers (Hermes et al, 2008; Assefa et al, 2010). The risk or quality of portfolio shows the ability of MFI to cover the risk of loss of principal loan or interest due to incapability of borrower to repay loan (CGAP, 2009; Basharat et al, 2014 and Micro Rate Guide, 2014). Efficiency or Productivity is the providing of quality service to maximum clients at lowest possible cost (Basharat et al, 2014; CGAP, 2009; MicroRate, 2014; Arsyad, 2005; Assefa et al, 2010). Profitability is the current growth of the MFI, however sustainability is the continual operation and growth of MFI in the future. To find out the different determinants of performance of global MFI different models of sustainability, profitability, quality of portfolio and efficiency are developed. For the second research objective of the trade-off between outreach and profitability; and outreach and efficiency, models are developed that include both the depth and breadth of outreach.


The results of first research objective help to determine the performance of global MFIs under the dimensions of - Sustainability, Profitability, Quality of Portfolio and Efficiency. The results shows that the MFIs will be performing better in terms of Sustainability, Profitability, Quality of Portfolio and Efficiency if MFIs charge higher interest rate relative to its loan. Moreover, MFIs are profitable and sustainable if they control their expenses and have large size of outstanding client’s loan. However the MFIs will grow in future if they spent more on the Personnel expense. The outcome of the panel data analysis shows that the increase in percentage of female borrowers will increase the profitability of MFIs, it may be the due to the fact that the microfinance institutions are more inclined to female borrowers because of high recovery rate. However, it should be noted that the percentage of female borrowers is not significant variable in sustainability of the MFIs. Therefore, serving both male and female borrowers may help to grow the MFIs in future. One more significant variable is the age of MFI, the results indicate that the young MFIs are more efficient and have high quality of risk portfolio.

The results for the trade-off of outreach and profitability & efficiency show that there is a trade-off between the depth of outreach (outreach to poor) and profitability and efficiency of MFIs. There is no trade off of outreach to women borrower and number of clients served with profitability and efficiency of MFI. The findings of this research verify the results of previous studies of Hermes et al. (2011) and Cull et al. (2007) on global MFIs. With up to date data and more MFIs in the sample, the results confirm the trade-off of outreach to poor with profitability and efficiency of MFIs.


Arsyad, L. (2005), An assessment of microfinance institution performance, the importance of institution performance. International Journal of Business, 7(3), pp. 391—427

Assefa, E., Hermes, N. and Meesters, A. (2010), Competition and performance of microfinance institutions [online] accessed at: http://www.microfinancegateway.org/sites/default/files/mfg-en-paper-competition-and-performance-of-microfinance-institutions-aug-2010.pdf on 20 June 2014

Basharat, A., Arshad, A. and Khan, R. (2014), Efficiency, productivity, risk and profitability of microfinance industry in Pakistan: A statistical analysis, MicroNote, 22, pp.1-10

Consultative Group to Assist Poor, (2009), Financial analysis of microfinance institutions, The World Bank [online] accessed at: http://www.cgap.org/sites/default/files/CGAP-Training-Financial-Analysis-Course-2009.pdf on 17 June 2014

Cull, R., Kunt, A.D. and Morduch, J. (2007), Financial Performance and outreach: A global analysis of leading microbanks, The Economic Journal, 117, pp.F107-F133

Downey, K and Conroy, S. J. (2010), Microfinance: The impact of non-profit and for-profit status on financial performance and outreach. [online] accessed at:  https://sodajobboard.com/research/35795-Microfinance--The-Impact-of-Nonprofit-and-For-Profit-Status-on-Financial-Performance-and-Outreach.pdf on 18 June 2014

Haq, M., Skully, M. and Pathan, S. (2010), Efficiency of microfinance institutions: a data envelopment analysis, Asia-Pacific Financial Markets, 17, pp.63–97

Hermes, N. and Lensink, R. (2007), The empirics of microfinance: what do we know, The Economic Journal, 117, pp.F1-F10

Hermes, N. Lensink, R. and Meesters, A. (2008), Outreach and efficiency of microfinance institutions, World Development, 39(6), pp. 938–948

Hermes, N and Lensink, R. (2011), Microfinance: Its impact, outreach and sustainability, World Development, 39(6), pp. 875–881.

Kar, A.K. (2012), Does capital and financing structure have any relevance to the performance of microfinance institutions? International Review of Applied Economics, 26(3), pp.329–348

Mawa, B. (2008), Impact of Microfinance: Towards achieving poverty alleviation. Pakistan Journal of Social Sciences, 5(9), pp. 876-882.

MicroRate, (2014), Technical Guide: Performance and social indicators for microfinance institutions. MicroRate Incorporated.

Rauf, S.A. and Mahmood, T. (2009), Growth and performance of microfinance in Pakistan, Pakistan Economic and Social Review, 47(1), pp.99-122

Roy, A. and Goswami, C. (2013), A scientometric analysis of literature on performance assessment of microfinance institutions.  International Journal of Commerce and Management, 23(2), pp. 148-174

StrØm, R. O., D’Espallier, B. and Mersland, R. (2014). Female leadership, performance, and governance in microfinance institutions. Journal of Banking & Finance, 42, pp.60-75.

Zerai, B. and Rani, L. (2012), Is there a tradeoff between outreach and sustainability of microfinance institutions? Evidence from Indian Microfinance Institutions (MFIs), European Journal of Business and Management, 4(2), pp. 90-98