Examining The Relationship Between Financial Sustainability And Outreach Of Microfinance Institutions In India: An Empirical Analysis

Abstract

This study explores the intricate relationship between financial sustainability and outreach of Microfinance Institutions (MFIs) in India during 2023. Through empirical analysis, we assess the performance and strategies of prominent MFIs, focusing on two main dimensions: financial sustainability and outreach capacity. For financial sustainability, key indicators such as Portfolio at Risk (PAR), Capital Adequacy Ratio (CAR), Operational Self-Sufficiency (OSS) and Return on Equity (ROE) are scrutinized. The study reveals that lower PAR and higher CAR, OSS and ROE values are indicative of healthier financial statuses. Additionally, operational strategies like technological innovation and product diversification are identified as crucial for sustaining financial health. On the outreach front, the study delves into how MFIs expand their services to underserved populations, particularly focusing on women and rural dwellers. Metrics such as the number of loan accounts and geographical spread are used to evaluate outreach. The findings suggest that innovative approaches like digital platforms and financial literacy programs significantly enhance the reach of MFIs.  By examining the intersection of these two dimensions, the study underscores the balancing act MFIs must perform to achieve both financial stability and extensive outreach, thus fulfilling their social mission of inclusive financial growth. The insights drawn from 2023 data suggest a strong and good connection in sound economic condition and extensive reaching capabilities, demonstrating that sustainable financial practices are essential for broader, effective service delivery.