The Double Bottom Line Commitment And Microfinance Sustainability in Pakistan

Abstract

The purpose of this article is to conceptualize the sustainability of microfinance institutions (MFIs) by reviewing the existing sustainability indices and indicators in terms of double bottom line. A multidimensional construct based on financial and outreach indicators is proposed to develop an index that measures sustainability of MFIs. Principal Component Analysis is used to assign weights to individual indicators to determine the sustainability score of MFIs in Pakistan for the period 2006-2015. The weights assigned to individual indicators of financial self-sufficiency (FSS), operational self-sufficiency (OSS), average loan balance per borrower (ALPB) and number of active borrowers (NAB) are 0.6643, 0.6607, -0.1905 and 0.2931 respectively. The positive values for weights indicate that any increase in FSS, OSS, and NAB will increase the sustainability scores of MFI, whereas increase in ALPB may negatively contribute to the sustainability score of MFI. Additionally, the determinants of sustainability are identified using fixed effect regression. Results suggest that return on asset, borrower per staff member, operating expense ratio, subsidies and age of MFIs are contributing positively towards the sustainability of MFI.