Assessing Sustainability and its Determinants of Microfinance Institutions in India

The financial sector participates in the process of inclusive growth by way of financial inclusion activities. Of all the measures adopted so far, microfinance is considered to be one of the most powerful tools, which does most for the financially excluded people. Since microfinance is regarded as an important tool for combating financial exclusion, it is equally important to ensure sustainability of such institutions. For many years the term sustainability was viewed to be a crucial issue for only profit making entities, as for other development institutions and microfinance institutions (MFI), sustainability was deemed ensured through concessional lending and subsidies from government and donors. The present study attempts to assess the operational sustainability of 54 MFIs from 2009-2014 based on two broad parameters i.e. operational self-sufficiency and outreach. Further, the study also attempts to identify the determinants of operational sustainability. A panel data regression model was employed on 30 MFIs for six years from 2009-2014 to identify the influence of selected variables on operational self-sufficiency. Return on assets, return on equity, operating expenses to gross loan portfolio are found to be significantly and positively influencing operational self-sufficiency whereas debt to equity is found to be significantly and negatively influencing self-sufficiency. Impact of other variables was found insignificant.