An Analysis of Sustainability of Microfinance Institutions & Its Determinants: Using Institutionalists Approach

Abstract

The commercialization of microfinance industry has brought paradigm shift in its delivery models, target audience and its mission. The underlying assumption of institutionalist approach is to create a financial system that serves the needs of not so poor class (instead of poorest) on sustainable basis and also earn profits. The sustainability and profitability of micro-finance institutions have become a question mark today and microfinance (commercialized) is gradually losing its identity by evading its original social service responsibility. The present paper analyzes profitability of these microfinance institutions and explores whether commercialized MFIs, as expected earlier by institutionalists, exhibit better financial performance and chances of sustainability compared to traditional non for profit MFIs. The empirical analysis of profit motivated MFIs reveals that profit motivated MFIs have higher odds of sustainability. Further, the factors affecting the Financial Self Sufficiency of the MFIs are identified by literature review and their impact on Financial Self-Sufficiency is studied by using Logistics Regression.