Master of Science in Economics

Faculty / School

Faculty of Business Administration (FBA)


Department of Economics

Date of Submission



Dr. Muhammad Nishat, Faculty of Business Administration, Institute of Business Administration, Karachi

Project Type

MSECO Research Project

Access Type

Restricted Access


It is a commonly raised question by many researchers; can a profit-centric and social welfare approach in the microfinance industry go together or there is a trade-off between the two? This research project report aims to answer this question specifically for the microfinance sector in Pakistan. Taking a panel data of 24 microfinance providers for a period of 9 years (2003-12), this study tries to establish whether there is a tradeoff between financially sustainable operation and serving the poor, low income group of potential customers of microfinance services. The microfinance sector comprises of specialized microfinance banks (MFBs), non-government organizations (NGOs), rural support programs (RSP) and other non-bank financial institutions (NBFI). It is in a state of expansion and growth with a continuously increasing gross loan portfolio (GLP), new products & services and foreign investment. The analysis is based on the sector as a whole as well as on the basis of legal status of MFP i.e. Banks, NGOs and NBFI. Rural support programs are included in the NGO category. The empirical analysis consisted of OLS regression and panel data analysis. Financial sustainability was proxied by operational self-sufficiency (OSS) whereas outreach is a multi-dimensional variable that is proxied by average loan size per borrower, number of female borrowers, number of active borrowers (NAB), scope of outreach and yield on gross loan portfolio (GLP). Control variables include age of the MFPs, cost per borrower (CPB), profit status and expense to assets ratio. The empirical analysis reveals that there does exist a tradeoff between depth of outreach i.e. average loan size per borrower and OSS. Larger loans provide MFPs with financial stability and sustainability but this comes at a cost of mission drift i.e. a deviation from their core mission of serving the poorest of the society as the low income group requires smaller size loans. But the other aspect of depth of outreach i.e. number of female borrowers has a complementary relationship with OSS for NGOs. Interest rates aloes affect OSS positively while in case of NAB no conclusive relationship could be drawn. MFBs lend out large loans and generally cater to the upper segments of the microfinance market whereas NGOs cater to the lower segments and give out small loans, primarily to female borrowers. However the fact that their portfolio consists of mostly females, OSS of NGOs does not suffer as a result. Greater scope of outreach in terms of offering products and services other than micro loans also positively affects financial sustainability. This is explained by key developments in the industry like burgeoning micro-insurance and savings portfolios and introduction of branchless banking and credit information bureau (CIB) initiatives. To sum up, the dataset might be too small to give completely unbiased results but it provides a direction for future research and analysis especially in examining the role of female borrowers and product diversification in impacting the financial sustainability of MFPs.


ix, 48

The full text of this document is only accessible to authorized users.