Optimal Financing Choice for Institutional Sustainability: Evidence from a Global Study on Microfinance Institutions

This study investigates the role of different financing sources on the financial sustainability of Microfinance Institutions (MFIs) using a combination of efficiency estimation techniques and regression analysis. Specifically, this study utilizes the Data Envelopment Analysis (DEA) method to measure MFIs’ efficiency levels, and the Generalized Method of Moments (GMM) estimator to assess the effects of different financing sources on financial sustainability. This study employs a panel dataset comprising 661 MFIs from 86 nations, covering the year 2010–2018. The findings reveal that, overall, MFIs exhibit intermediate levels of efficiency. Furthermore, the regression results demonstrate that retained earnings and equity are positively associated with financial efficiency, indicating that MFIs that rely more heavily on these sources tend to be more financially stable. The practical significance of these findings is significant for both policy makers and regulators in the microfinance industry. The study suggests that funding strategies must be carefully considered to improve MFIs’ efficiency and sustainability.