Examining Potential Linkages Between Sustainability and Outreach: Perspectives from the Microfinance Industry of Ghana

Ghana’s recent financial sector transformation, which resulted in the collapse of several microfinance institutions (MFIs) renewed the debate on whether microfinance institutions can achieve financial sustainability while concurrently meeting their social objective of targeting the poorest and marginalized populations. This study appraises the sector by examining its potential to support financial inclusion (breadth of outreach) and target the poor and excluded population (depth of outreach) while simultaneously pursuing profitability and selfsufficiency. To achieve this, the study employs random effects estimation using panel data of 89 MFIs in Ghana from 1999 to 2018. The findings suggest that improved efficiency while achieving financial sustainability increases an MFI’s odds of achieving outreach. This remained the case for both depth and breadth of outreach. However, owing to profitability concerns, MFIs are often disincentivized to pursue outreach. The fulfilment of profitability was only favourable in improving the breadth of outreach when the proxy was the number of depositors holding voluntary deposit accounts. Outreach was enhanced when the financing structure of the MFI favoured debt over equity. Results for risk variables showed that MFIs could achieve social objectives at an optimal risk level. While the outcomes of this study may vary from global-level studies, I argue that with careful management of financial ratios and performance, an MFI can simultaneously achieve financial sustainability and outreach. Policy efforts that concentrate on gender, infrastructure development and technological advancement would also prove to be beneficial to the course.