Capital Structure and Outreach Nexus of Microfinance Institutions: New Evidences from the Society of Muslim Economies

Abstract

Latest development in the microfinance industry, such as; transformation of non-profit microfinance institutions (MFIs) into a profit oriented financial intermediaries or commercialization to channel private equity emerge a great significance to evaluate the relationship between source of funds and poverty outreach. The purpose of this study is to investigate capital structure and outreach nexus in MFIs. The study utilizes a panel dataset containing 5 years of observation from 57 MFIs in 23 member states of the Organization of Islamic Cooperation. The results claim that less leveraged MFIs achieve better depth of outreach. Consequently, high leverage is positively related to the breadth of outreach. Regulated MFIs curtail their depth of outreach, but obtain a greater breadth of outreach and the reason may be the logical indication of increasing emphasis on savings mobilization.