Sustainability of MFIs through Governance Mechanisms: A cross-Country Analysis of Regulation on Outreach and Operational Self Sufficiency

Poverty is an age long problem that has been part of mankind ever since civilization and the fight against poverty is as old. There are many efforts to fight poverty of which microfinance is one. One theory to explain prevalence of poverty especially in the age of capitalism is that poor enterprising people cannot lift themselves out of poverty because they lack capital to develop their enterprises. Start up businesses and enterprises commonly start operations with credit support from financial institutions but there are prerequisites to attaining this credit and numerous poor individuals do not possess these prerequisites. Such individuals are referred to as poor and un-bankable. Microfinance therefore tries to act as a market remedy to this problem. Microfinance is the provision of financial services to individuals with little or no cash income, small businesses or microenterprises that are financially marginalized by the mainstream financial systems. The notion governing microfinance is that when the poor are enabled they can lift themselves out of poverty and therefore it is important to support their enterprises irrespective of their creditworthiness. Microfinance involves numerous organizations called Microfinance Institutions (MFIs) and they are broadly spread into legal categories like Non-Profit vs. for Profits, Banks, Non Bank Financial Intermediaries, Credit Unions etc. They vary as much in organization and clientele focus and are found largely concentrated in developing nations of the world but not limited to them. Since its inception microfinance has grown in terms of clientele and capital commitment and therefore there is a growing need to understand the state of the industry, the organizations in particular, in terms of their sustainability. This research therefore investigates the sustainability of MFIs through their governance policies, both internal and external