Published in: Public Finance Quarterly 2017/3 (p. 348-361.)
SUMMARY: This study attempts to determine whether MFIs can achieve financial sustainability while instantaneously reaching to the poorest to render financial services. To deal with methodological issues in previous studies due to the use of OLS, we used generalized method of moment (GMM) technique that is the most sophisticated technique while dealing with dynamic data. The selected sample consists of 405 MFIs across 21 Latin American countries for the period of ten years from 2005 to 2014. The results indicate compatible relation of depth of outreach (ALB) with profitability and breadth of outreach measured with number of active borrowers (NOAB) shows negative impact on profitability, though the results are insignificant. However, using GMM, we found compatible relation of ALB and NOAB with profitability. This study may be very helpful for policy development which may deliver treasured understandings to verbalize the future policy concerning to the revolutionary progression of MFIs.
KEYWORDS: outreach, profitability, Latin America, dynamic panel data analysis
JEL CODES: D0, E25, N16, N26