Funding Strategy and Performance of Microfinance Institutions: An Exploratory Study

• DOI: http://doi.org/10.1002/jsc.2116
• Author: Hubert Tchakoute Tchuigoua,Guy Serge Kouao,François Durrieu
• Date: 01 March 2017
• Published date: 01 March 2017

RESEARCH ARTICLE

Strategic Change 26: 133–143 (2017)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2116

Copyright © 2017 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2116

Funding Strategy and Performance of Micronance

Institutions: An Exploratory Study1

Hubert Tchakoute Tchuigoua

KEDGE Business School, France

François Durrieu

KEDGE Business School, France

Guy Serge Kouao

University Félix Houphouët-Boigny, Ivory Coast

MFI social and nancial performance differs depending on their funding

behavior.

Micronance is now recognized as an eective tool of nancial inclusion and

poverty alleviation; micronance institutions (MFIs) have demonstrated that poor

households can be reliable bank customers (Cull et al., 2009). Existing research

provides strong evidence that MFIs have contributed to improving the well‐being

of people beneting from their services and to easing micro‐enterprise access to

external funding (Becchetti and Castriota, 2011; Hartarska and Nadolnyak, 2008;

Rai and Ravi, 2011), thus alleviating the microbusiness nancing constraints of

people who are economically excluded from the conventional banking sector.

Moreover, as shown by the 2013 report of the Microcredit Summit, the total

number of clients MFIs serve worldwide grew continuously between 1997 and

2010, from 13 million to 205 million total customers. e number of poorest

clients who, for the rst time, have beneted from access to nancial services

oered by MFIs also grew from 8 million to 138 million. During this period,

MFIs achieved their promise of helping the poor rise out of poverty through the

services they oer (Bubna and Chowdhry, 2010). One explanatory factor for

MFIs’ success is their access to diversied sources of external nancing at better

conditions. Funding is crucial to improving nancial inclusion, because it ensures

that MFIs have the resources needed to expand by increasing the number of clients

served and geographical and product diversication (Earne and Sherk, 2013).

MFIs’ ability to access external funding is thus a key issue in supporting their

growth and the achievement of the promise of micronance. Access to external

funding and protability are crucial to all MFIs, because this enables them to

1 JEL classication codes: G21, G24, G32.

Three groups of MFIs with

homogeneous funding practices

are identied: unsubsidized

deposit‐based MFIs, unsubsidized

borrowing‐based MFIs, and

subsidized MFIs.

Subsidies enhance nancial

performance.

Unsubsidized MFIs that charge

higher interest rates exacerbate

adverse selection and moral

hazard and thus worsen net

returns.