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Sustainability and Outreach: the Goals of Microfinance

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Sustainability and Outreach:
the Goals of Microfinance
Gianfranco Vento

4.1 Introduction
The financial sustainability of microfinance projects and institutions
consists mainly in finding a balance between the profit gained from the
projects and the cost of carrying them out. This variable is taken into
great consideration by MFIs, donors and investors who bring financial
support to microfinance and the various stakeholders. In pursuing the
goal of sustainability the conditions are created so that the results
obtained may continue over time and, ultimately, so that the initiatives
and institutions are self-sufficient from outside contributions. The sustainability of microfinance programmes is traditionally related to the
social benefit that derives from them, usually meant, though not exclusively, as the ability to reach the poorest sector of the population. Such
concept of ‘depth’ of intervention is called outreach in specialist
terminology.
The balance between lasting sustainability of microfinance projects
and institutions, and the choice of beneficiaries and the products and
services to offer, represents one of the most widely discussed dilemmas
among microfinance academics and practitioners. This chapter will discuss, first, the definitions of sustainability and outreach, identifying the
various meanings of these broad concepts. Then, with regard to the
trade-off between sustainability and outreach, the main criteria to be
considered when selecting beneficiaries will be outlined. The aim is to
clarify whether, and in what way, working with especially poor customers could affect the offer of financial services in terms of sustainability.
Finally, this chapter will propose a range of operating and management
choices suitable for reconciling the aims of sustainability with those of
outreach.
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Sustainability and Outreach: the Goals of Microfinance 55

4.2 Sustainability and outreach
In microfinance, sustainability is understood primarily as the ability of
MFIs to repeat loans over time (substantial financial sustainability),
regardless of how the financial stability of the project or institution is
achieved. Substantial financial sustainability (Figure 4.1) describes the
ability to cover the costs necessary for the start-up and management of
the microfinance activity, whether through the profits from services
offered, in particular financial ones, or through grants and soft loans. In
a stricter sense, therefore, to be financially sustainable a proje...
4
Sustainability and Outreach:
the Goals of Microfinance
Gianfranco Vento
4.1 Introduction
The financial sustainability of microfinance projects and institutions
consists mainly in finding a balance between the profit gained from the
projects and the cost of carrying them out. This variable is taken into
great consideration by MFIs, donors and investors who bring financial
support to microfinance and the various stakeholders. In pursuing the
goal of sustainability the conditions are created so that the results
obtained may continue over time and, ultimately, so that the initiatives
and institutions are self-sufficient from outside contributions. The sus-
tainability of microfinance programmes is traditionally related to the
social benefit that derives from them, usually meant, though not exclu-
sively, as the ability to reach the poorest sector of the population. Such
concept of ‘depth’ of intervention is called outreach in specialist
terminology.
The balance between lasting sustainability of microfinance projects
and institutions, and the choice of beneficiaries and the products and
services to offer, represents one of the most widely discussed dilemmas
among microfinance academics and practitioners. This chapter will dis-
cuss, first, the definitions of sustainability and outreach, identifying the
various meanings of these broad concepts. Then, with regard to the
trade-off between sustainability and outreach, the main criteria to be
considered when selecting beneficiaries will be outlined. The aim is to
clarify whether, and in what way, working with especially poor cus-
tomers could affect the offer of financial services in terms of sustainability.
Finally, this chapter will propose a range of operating and management
choices suitable for reconciling the aims of sustainability with those of
outreach.
54
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