Revenue diversification and financial sustainability of microfinance institutions

Abstract

Purpose: This paper aims to investigate whether revenue diversification affects the financial sustainability of microfinance institutions (MFIs). Design/methodology/approach: The study uses a worldwide panel data set of 443 MFIs in 108 countries for the period 2013–2018 and two-step system Generalized Method of Moments estimation model. Findings: The study finds that revenue diversification has a significant and positive effect on the financial sustainability of MFIs. Practical implications: The findings of this study actually offer important managerial and policy lessons on MFIs’ financial sustainability. Microfinance managers and policymakers should consider revenue diversification as a strategy through which MFIs can attain financial sustainability instead of overreliance on donations and government subsidies Originality/value: Unlike previous studies that examined revenue diversification in the context of banking firms, this study contributes to literature by examining the impact of revenue diversification of the financial sustainability of MFIs.