| Abstract: | The feasibility of microfinance institutions (MFIs) to expand outreach to the poorest while remaining financially sustainable has long been debated. Using data from 206 MFIs in 33 African countries, we adopt the three‐stage least square technique to assess whether a trade‐off exists between sustainability and outreach depth. Our results confirm the existence of a trade‐off. The evidence also supports ongoing subsidies for MFIs with the aim of encouraging outreach. In addition, we examine whether there is an inflection point beyond which higher interest rates reduce profitability for MFIs. We find no evidence of a threshold beyond which profitability is reduced. |
