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Recent trends in microfinance, such as commercialization and deposit mobilization, highlight the importance of investigating the link between sources of funds and performance by microfinance institutions (MFIs). This article estimates the joint impact of seven categories of capital on three dimensions of performance, using a seemingly unrelated regressions (SUR) method and panel data from MFIs in Eastern Europe and Central Asia during the period 2005–2009. The results suggest that performance is influenced by the preferences of the stakeholders who provide the capital. Grants are associated with a better depth of outreach. Concessional loans are useful in improving outreach without affecting financial results. Loans from social investors are related to a lower return on assets but also an improvement in outreach to lower-income clientele. The evidence regarding the influence of savings on financial performance is less clear, but the results are interpreted to mean that savings should be encouraged to serve the needs of the poor as well as to lower the cost of capital.
Khachatryan et al. (Fri,) studied this question.