Sustainability and Outreach in the Microfinance Sector of Ghana

Abstract

The recent finance sector clean-up in Ghana led to the collapse of a number of microfinance institutions (MFIs), which reignited the discussion of whether MFIs can achieve much-needed financial sustainability while also meeting the goal of reaching out to the poor. In that regard, this paper explores the potential for MFIs to improve the breadth of outreach by fostering financial inclusion and to deepen the depth of outreach by targeting the poor while simultaneously pursuing self-sufficiency and profitability. Using data from the MIX database for 89 MFIs over a 20-year period, we employed fixed and random effects models to show that among other results, outreach is improved when MFIs are financed more by debt than equity and that the pursuit of profitability is a disincentive to outreach. Overall, the results suggest that with improved efficiency in the pursuit of sustainability, MFIs in Ghana stand better chances of achieving outreach both in depth and breadth.