FINANCIAL SUSTAINABILITY

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Statement

Use of market incentives and directed initiatives aiming at MFIs' financial sustainability

Explanation

Long-term survival and sustainability is critical for an MFI in being able to reach its target clientele and cover administrative and other costs. While social goals of reaching the poorest, and poverty alleviation are valid, sustainability - standing on ones own feet - is as true for a low-income household receiving microfinance, as for the microfinance institution itself!

Sustainability of MFIs has internal and external implications - internal, in terms of deposit and savings mobilization, financial performance, staff motivation, loan and administrative costs, etc.; external, in terms of availability of funds for loan disbursement, grants for community organizing and training etc.

Besides being efficient and self-sufficient, sustainability goals for an MFI also have other benefits - attracting external financial investment, satisfying any central bank reporting requirements if any, building trust among its clients and supporting institutions (including donors), satisfying and attracting commercial bank partners.

Key Actors

  • Non-governmental organizations
  • Training and research institutions
  • Evaluators and rating agencies

Related Issues

  • Innovative mechanisms for delivering financial services to low-income households
  • Rating of MFIs and other performance standards
  • Funds availability and its cost implications
  • Grants for 'non-financial' activities and programme initiation
  • Checklists, guidelines, best practices for MFI organization and operation
  • Mechanisms for developing partnerships between MFIs and commercial banks

Examples

Several MFIs in Latin America and Asia have managed to achieve self-sufficiency and sustainability -

Links in the Virtual Library

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Hari Srinivas - hsrinivas@gdrc.org
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