The bidirectional relationship between MFIs’ financial and social performance: Sustainability and outreach perspective

Abstract

This paper examines the bidirectional relationship between sustainability and outreach of microfinance institutions (MFIs) in the MENA region, using unbalanced panel data regression during the period from 1999 to 2018. The simultaneous equation model (SEM) is used based on the 2SLS regression considering endogeneity problem between sustainability and outreach. Two main systems are developed based on SEM; the first relates sustainability with breadth of outreach, while the second includes sustainability and depth of outreach. Results state that sustainability and outreach are complementary objectives, and the direction of their relationship is from outreach to sustainability. This finding is tested and supported using various robustness checks, namely: excluding firms with few data, using other methods to estimate 2SLS regression model, and examining the impact of sustainability on outreach based on their indices developed based on the TOPSIS method. The study concludes with some suggestions for future research in this field.