The Sustainability of Microfinance Institutions: How Do Their Environmental, Social, and Financial Performance Interact?

Abstract

This paper analyzes the sustainability of microfinance institutions (MFIs) and contributes to the literature by considering the three main dimensions of sustainability performance (social, financial, and environmental) and considering their interactions. The analysis is based on a very detailed and unique database including 794 MFIs from 106 countries, covering the period 2016–2022. MFI performance is analyzed in terms of efficiency, as the ratio of outputs to inputs, using data envelopment analysis (DEA). This allows assessing whether resources are optimized across the different performance indicators. Three-stage least squares regressions are then used to analyze the interaction between social, financial, and environmental performance. The results show that MFIs tend to be more socially and financially efficient than environmentally efficient. Social performance is at the core of MFI sustainability, by interacting positively with financial and environmental performance. Thus, there is no competition between social and environmental aspects but a real complementarity. Conversely, the environmental and financial components of performance do not appear to be related. Consequently, neither financial performance nor environmental performance is critical to the overall performance of MFIs.