Financing and financial sustainability of microfinance institutions (MFIs): a conceptual view

Recent evidence shows that MFI financing continues to evolve with an increased inclination towards commercial financing. Taking stock on MFI financing and refocusing on the relationship between financing options and financial sustainability (FS) is unavoidable. The authors consummated a literature review based on complementing the little evidence on the subject with both theoretical and implied evidence from related studies in unpacking the relationship. Though donations are losing grip as a popular MFI financing option, review of literature recommends smart subsidies to spur FS and counter inefficiency, mis-targetting, dependency and distortions. As much as debt addresses agency problems and endorses FS, it has to be kept within limits to curb liquidation and mission drift. Deposit attraction augments FS and outreach, though MFIs must prepare to foot licensing costs, otherwise, mission drift ensues. Equity, though scarce in microfinance, is cheap and additive to FS. The authors suggest that MFIs should consider commercial funding, whilst keeping a check on the downside of each commercial financing option to augment FS and multiply outreach