Determinants of Financial Sustainability of Microfinance Institutions in Ghana

The importance of microfinance to developmental objectives relating to access to financial services, poverty alleviation, inequality reduction, and providing a solution to financial market failure among others cannot be over-emphasized. Academic literature confirming this is abundant. However the sustainability of these institutions has been a major concern in the recent past. This study seeks to determine what drives financial sustainability of microfinance institutions within the Ghanaian context. The study follows a quantitative approach using secondary data sourced from MIX Market. An unbalanced panel dataset from 25 Ghanaian microfinance institutions over six years (2006-2011) was used. Econometric results found that sustainability of microfinance institutions is positively related to the yield on gross portfolio and administrative efficiency ratio and negatively related to staff productivity. The direction of the staff productivity is puzzling and calls for more in-depth research to understand the source of the negative relationship between high level of staff productivity and financial sustainability