MICROFINANCE INSTITUTIONS: A PROFITABLE INVESTMENT ALTERNATIVE?
Vol. Volume 17, Number 4 December/2012
NOEL D. CAMPBELL & TAMMY M. ROGERS
This paper examines the determinants of return on equity for microfinance institutions, an important source of funds for entrepreneurs in developing countries. Recent research indicates that MFIs need to become financially sustainable without relying on external funding. In order to meet this objective, MFIs have begun to look to the capital markets as a source of funds. Our findings indicate that investors in MFIs can look at measures similar to those used by traditional financial institutions, like commercial banks, such as operating expense and portfolio yield measures to measure possible performance of an MFI. MFIs that have a larger percentage of women borrowers fare better. Additionally, we find that country specific macroeconomic conditions affect MFI return.
Microfinance return on investment, MFI ROE, financial self-succificency, financial sustainability