What is it about?
This article looks at what helps microfinance institutions (MFIs) and their clients (borrowers) become financially successful. Microfinance institutions provide small loans and financial services to individuals who usually do not have access to traditional banking. The researchers reviewed many existing academic studies using a SLR. The study identified key factors that improve profitability: For microfinance institutions (MFIs): •Providing loans to women and using group lending systems •Keeping loan repayment rates high •Closely monitoring clients •Setting appropriate interest rates •Controlling operating costs For borrowers: •Receiving training in small business management •Developing strong and innovative business ideas •Accessing microcredit with fair interest rates •Being monitored and supported by MFIs •Using loans mainly for productive investments Together, these factors allow MFIs to remain financially sustainable while helping borrowers grow their businesses and improve their incomes. The paper also suggests that long-term success in microfinance depends more on sound financial practices than on heavy government subsidies.
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Why is it important?
This research is important for several reasons: a) It connects financial sustainability with poverty reduction Microfinance is often promoted as a tool to reduce poverty, but many programs struggle financially. This study shows how MFIs can remain profitable while still supporting low-income borrowers effectively. b) It provides clear guidance for MFIs and borrowers The identified factors offer practical advice for: •MFIs on how to manage costs, interest rates, and client relationships •Borrowers on how to use loans productively and build successful businesses This can improve outcomes for both sides. c) It informs policymakers Governments and development organizations often support microfinance programs. The findings suggest that policies should focus on: •Creating strong financial systems •Encouraging market-based practices •Supporting training and monitoring rather than relying only on subsidies
Perspectives
This manuscript is particularly valuable because it tackles one of the biggest challenges in microfinance: balancing social goals with financial sustainability. Many people assume that microfinance must rely heavily on subsidies to help the poor. This study challenges that idea by showing that well-managed, market-oriented practices can allow MFIs to thrive while still serving disadvantaged communities. The paper considers both sides of the relationship: the institutions and the borrowers. By recognizing that profitability depends on good business practices from MFIs and smart use of credit by clients, it presents a realistic and balanced view of microfinance. The practical nature of the findings stands out. The identified drivers and indicators can be directly applied by MFIs, entrepreneurs, and policymakers, making the research highly relevant beyond academia. Overall, the manuscript contributes to a more sustainable vision of microfinance — one where financial strength and social impact go hand in hand. It offers useful insights for improving livelihoods while ensuring that microfinance institutions can continue operating and expanding their services.
Antonio Carrizo Moreira
Universidade Aberta
Read the Original
This page is a summary of: Profitability of microfinance institutions and borrowers: a systematic literature review, Cuadernos de Gestión, September 2024, Instituto de Economia Aplicada a la Empresa (IEAE),
DOI: 10.5295/cdg.232011am.
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