Abstract

The global financial crisis that started in 2007 and 2008 affected financial markets across the world. In many countries, it was followed by local financial crises with severe consequences for marginalized borrowers such as micro and small businesses and consumers with already limited access to financial services. Such clients are typically served by Microfinance Institutions, which provide loans, savings and payment facilities to a target clientele. We study how the spread of the financial troubles resulting from the 2007-2008 crisis affected these MFIs institutions’ ability to achieve their double bottom line to remain financially sustainable and to reach as many marginalized clients as possible. Our data consist of 2,611 MFIs from 118 countries and is for the 1998-2011 period. We employ the fixed effect model with Difference in Difference (DID) specification and control for country and organization-specific characteristics. Results show that the global financial crisis had a negative impact on the ability of MFIs to serve many clients (measured by the number of active borrowers) but it had no negative impact on financial sustainability (measured by operational self-sufficiency and return on assets). This suggests that MFIs have dealt with the crises just like banks, namely restricting credit and serving fewer presumably larger borrowers.

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