Prospects, Outreach and Sustainability of Microfinance: A Case Study of Dire Microfinance Institution

It is recognized that microfinance emerged to serve societies who do not have access to formal financial services due to lack of collateral. This encouraged different stakeholders of development (government, non-government, scholars, etc) to think of establishing Micro Finance that serves the poorest of the poor. It is believed that, this access has enabled to empower the poorer section of the society. However, the current situations created suspicions towards the achievement of the objectives it emerged for. Hence, this study was undertaken to evaluate performance of microfinance in terms of achievement of depth of outreach and self sustainability, and to figure out the tradeoff between its depth of outreach and self sustainability. In addition, its economic valuability to different groups of the society (with different economic statuses) was considered as another line that enables to assess its performance. This study, therefore, was carried out taking Dire Microfinance Institution (DMFI) in Ethiopia as a case study area. While conducting this study, both qualitative and quantitative approaches of analysis were used. Percentages, bar graphs and pie charts were used as tools of analysis to analyze the degree of outreach and sustainability of the institution. The tradeoff between outreach and sustainability of the institution was estimated using simple (Pearson’s) correlation coefficient. In addition, OLS regression model of econometrics was used to figure out the economic impact of the institution across its different types of clients. Consequently, the stated simple statistical techniques (percentages, bar graphs and pie charts) to find out the degree of outreach and sustainability show that there is a tendency of shifting target from the poor to the non poor ones, over time; and they also reveal that the trend of operational self sustainability of the institution is below 40% and remaining stagnant for the first four years of operation of the institution, when all of its clients were poorer. However, its operational self sustainability started to improve dynamically when non poorer clients were being involved in the institution. Moreover, the outcome of the simple correlation method indicates that there is negative tradeoff between depth of outreach and operational profitability of the institution, taking only poorer clients of the institution as a point of analysis. Finally, output of the econometric estimation indicates that the institution is much valuable to the poorer than its non poor clients. To estimate this, OLS regressions were undertaken separately and specifically to show the significance in economic impact of participation in DMFI by the different groups of the society.