Microfinance Performance and Domestic GDP Growth: Testing the Resiliency of Microfinance Institutions to Economic Change

Microfinance has been a topic of much interest recently, in particular the question of whether microfinance institutions can help poor clients while remaining financially sustainable. Recent research has fed hope that they can, suggesting that microfinance institutions are financially resilient to downturns in the domestic marketplace. Not only does this suggest that microfinance institutions may be good investments for reducing portfolio volatility, but that they may also be able to weather financial storms to effectively serve poor clients in unstable areas of the world. Looking at financial performance, however, is only half the story of microfinance institutions’ overall performance. They also seek to maximize help to the poor, or “outreach.” This thesis looks at how both the financial and the outreach performance of microfinance institutions varies with domestic GDP growth. Using panel data from the Microfinance Information Exchange (MIX), and OLS regressions controlling for year and country fixed effects, the analysis finds no significant correlation between domestic GDP growth and microfinance performance. This result suggests that microfinance may be an effective means of addressing poverty even in environments of low GDP growth.