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Practice What You Preach: Microfinance Business Models and Operational Efficiency

New publication World Development

12-02-15 |

The microfinance sector has room for pure for-profit microfinance institutions (MFIs), non-profit organizations, and socialfor-profit firms that aim to pursue a double bottom line. Depending on their business model, these institutions target different types of borrowers, change the size of their loans and adjust their loan pricing. We introduce a simple approach that accommodates a wide range of business models and allows us to estimate the operational efficiency of MFIs. Our empirical results show that MFIs with a high depth of outreach are most efficient, resulting in higher levels of outreach and profits for the same input mix. 

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