By Cynthia M. Brenner
Abstract
Since the financial crisis and the subsequent tightening of development assistance, foreign direct investment, and philanthropic donations, microfinance institutions (MFIs) have increasingly pushed financial independence as a means for ensuring their sustainability. Maximizing loan repayment rates is key to financial sustainability, reducing the cost of credit and dependence on subsidies. Many MFIs have adopted policies specifically targeting women in order to increase their impact on poverty reduction. The relationship between gender targeting and subsequent repayment rates has major implications for MFIs as they transition to financial independence. This study analyzes the effect of gender targeting on MFIs’ financial sustainability by empirically examining the relationship between the proportion of female borrowers and repayment rates. Using the Microfinance Information Exchange’s (MIX) global dataset covering 1,102 MFIs in 110 countries, the results indicate that female clients are associated with lower portfolio-at-risks and write-off ratios than their male counterparts. Furthermore, the results suggest there is a “tipping point” (30 percent female borrowers) above which women begin to repay at greater rates than men. Thus, this paper finds that the twin MFI goals of financial sustainability and targeting of loans to women are not contradictory; in fact, they are mutually reinforcing.
Cynthia Brenner is a graduate of the University of Notre Dame and the Georgetown Public Policy Institute. Gillette Hall, PhD served as her thesis advisor. Currently, Brenner is a Strategy and Operations Consultant with Deloitte Consulting’s Federal Practice.