Impact of regulation on microfinance institutions sustainability and outreach in sub-Saharan Africa

The proliferation of microfinance institutions (MFIs) with a great drive to mobilise deposits from the public has made regulation of the sector an important issue. This study investigates the impact of MFI regulation on their sustainability and outreach performance in selected sub-Saharan African co...

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Bibliographic Details
Published in:African journal of business and economic research 2020-09, Vol.15 (3), p.11-34
Main Authors: Adams, Abdulai, Tewari, Devi Datt
Format: Article
Language:English
Subjects:
Budgets
Capital
Central banks
Financial statements
Financial systems
Laws, regulations and rules
Microfinance
Microfinance Institutions
Outreach
Outreach programs
Regulation
Sub-Saharan Africa
Sustainability
Sustainable development
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Summary:The proliferation of microfinance institutions (MFIs) with a great drive to mobilise deposits from the public has made regulation of the sector an important issue. This study investigates the impact of MFI regulation on their sustainability and outreach performance in selected sub-Saharan African countries using 551 observations covering 71 MFIs across 10 countries for a period of 10 years. Using the dynamic generalised method of moment estimation technique, the study found empirical evidence that regulations have positive significant impacts on both the sustainability and depth of outreach performance of MFIs. In terms of magnitude, the impacts are greater on sustainability than on the depth of outreach. The study recommends that managers and board of directors of unregulated MFIs should take steps to get them regulated through proper budgeting to meet regulatory costs, minimum capital requirements, and engage more with regulatory authorities. Also, regulatory authorities (central banks) should step up the monitoring and supervision and ensure full compliance with regulatory guidelines by MFIs to help protect depositors and the financial system as a whole.
ISSN:1750-4554
1750-4562
DOI:10.31920/1750-4562/2020/v15n3a1