Impact of the Increasing Adoption of a Commercial Approach on Microfinance Institutions (MFIs)

Abstract

The purpose of this study is to examine the impact on the performance of Microfinance Institutions (MFIs) by their increasing adoption of a commercial approach. The generalised method of moments (GMM) has been applied to analyse data from 2,102 MFIs in 114 countries. The results show that adopting the commercial approach has no significant association with the financial performance of MFIs but has a significant positive association with the breadth and depth of MFIs’ outreach. However, the positive association with the depth of outreach represents a negative impact in the context of microfinance, as it indicates that the adoption of commercial approach by MFIs leads to providing larger loans, which is an indication of mission drift.