Efficiency and Outreach in the European Microfinance Sector

Lucia Dalla Pellegrina, Damla Diriker, Paolo Landoni, Davide Moro and Mahinda Wijesiri

No 515, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: This paper contributes to a growing body of literature on microfinance institutions, where the equilibrium between social and financial sustainability is one of the hottest topics. However, the evidence regarding this relationship in the European microfinance sector is scarce. In the current study, we intend to fill this knowledge gap. Specifically, using an original dataset obtained from a survey conducted in 2016-2017 on 159 Microfinance institutions (MFIs) operating in 38 European countries, we investigate whether pursuing proactive social sustainability can improve financial sustainability, measured by technical efficiency. Overall, our results show that MFIs that are more likely to comply with their social sustainability objectives (especially on the extensive margin, with a higher number of loans granted and on the intensive margin, by serving a higher share of women) are also doing well financially. The only aspect on which social sustainability does not seem to have a positive effect on financial sustainability is the financing of the poorest through the provision of small-scale loans. These peculiarities are somehow common to other non-European contexts. On the other hand, a phenomenon that seems peculiar to the European context is that larger MFIs, especially those operating in a context not subject to stringent financial regulation tend to show a comparative advantage and better withstand competition from the traditional banking sector. Our results are robust to alternative measures of financial sustainability and to the use of the Generalized Method of Moments (GMM) and Instrumental Variable (IV) estimation techniques to overcome the problem of endogeneity.

Keywords: Microfinance; European Union; social sustainability; outreach; mission drift; financial sustainability. (search for similar items in EconPapers)
JEL-codes: G21 I32 L26 O16 (search for similar items in EconPapers)
Pages: 61
Date: 2023-03
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-eff and nep-mfd
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Persistent link: https://EconPapers.repec.org/RePEc:mib:wpaper:515

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