Microfinance phần 5 pps

4

Sustainability and Outreach:

the Goals of Microfinance

Gianfranco Vento

4.1 Introduction

The financial sustainability of microfinance projects and institutions

consists mainly in finding a balance between the profit gained from the

projects and the cost of carrying them out. This variable is taken into

great consideration by MFIs, donors and investors who bring financial

support to microfinance and the various stakeholders. In pursuing the

goal of sustainability the conditions are created so that the results

obtained may continue over time and, ultimately, so that the initiatives

and institutions are self-sufficient from outside contributions. The sus￾tainability of microfinance programmes is traditionally related to the

social benefit that derives from them, usually meant, though not exclu￾sively, as the ability to reach the poorest sector of the population. Such

concept of ‘depth’ of intervention is called outreach in specialist

terminology.

The balance between lasting sustainability of microfinance projects

and institutions, and the choice of beneficiaries and the products and

services to offer, represents one of the most widely discussed dilemmas

among microfinance academics and practitioners. This chapter will dis￾cuss, first, the definitions of sustainability and outreach, identifying the

various meanings of these broad concepts. Then, with regard to the

trade-off between sustainability and outreach, the main criteria to be

considered when selecting beneficiaries will be outlined. The aim is to

clarify whether, and in what way, working with especially poor cus￾tomers could affect the offer of financial services in terms of sustainability.

Finally, this chapter will propose a range of operating and management

choices suitable for reconciling the aims of sustainability with those of

outreach.

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4.2 Sustainability and outreach

In microfinance, sustainability is understood primarily as the ability of

MFIs to repeat loans over time (substantial financial sustainability),

regardless of how the financial stability of the project or institution is

achieved. Substantial financial sustainability (Figure 4.1) describes the

ability to cover the costs necessary for the start-up and management of

the microfinance activity, whether through the profits from services

offered, in particular financial ones, or through grants and soft loans. In

a stricter sense, therefore, to be financially sustainable a project or insti￾tution must receive a flow of donations and profits, from interest and

commission, that cover operating costs, inflation costs, costs related to

the portfolio devaluation, financial costs, a risk premium and the return

on capital brought by project investors or MFI shareholders (Figure 4.2).

The entry of private investors into the microfinance market, as well

as the increasing scarcity of public funds, has brought financial self￾sustainability to the attention of donors and practitioners in recent years.

This should not be confused with substantial financial sustainability.

When we refer to substantial financial sustainability, grants and subsi￾dized funds are also included among the items that contribute to

cover costs and to stabilize the income of an MFI; whereas, with financial

Sustainability and Outreach: the Goals of Microfinance 55

Figure 4.1 Different levels of microfinance sustainability

Substantial financial

sustainability

Operational

self-sufficiency

Financial self

sustainability

Revenues

Grants

Fully financial

self-sufficiency Soft loans

Revenues =

Operational costs +

Inflation costs +

Loan loss provision +

Currency risk loss provision

Revenues

Revenues =

Operational costs +

Inflation costs +

Loan loss provision +

Currency risk loss provision +

Financial costs