Examining the Trade-off Between Social Outreach and Financial Efficiency: Evidence from Micro-finance Institutions in South Asia

Abstract

The micro-finance institutions (MFI) have been successfully operating for poverty alleviation. The recent turmoil in financial sustainability of major MFIs worldwide has raised the question of whether trade-off exists: Financial performance cannot be achieved without sacrificing the main objective—social outreach. This article examines the presence of such a trade-off by examining the empirical evidence from 127 South Asian MFIs over 2009–2013. The findings of this article reveal that MFIs have neutral trade-off in achieving the double bottom line: financial performance and social outreach. Moreover, there is a mission drift which is caused by higher portfolio at risk and resulted in lower capacity in targeting the poorest segment of citizens. In case of social outreach, it is found that financial performance of MFIs is dependent on the size of MFIs, years of operations and lending processes (group lending).