Sustainability of microfinance institutions in Thailand

Abstract

Microfinance programs play a vital role in poverty alleviation in developing countries; however, most microfinance institutions (MFIs) face the challenge of maintaining financial sustainability. While several studies have investigated factors affecting MFI financial sustainability, only a few focus on MFIs in Thailand. This paper uses the random effect model to study the determinants of Thai MFIs’ financial sustainability. Results show that sustainability is affected by the efficiency of Thai MFI staff members in managing borrowers and the MFIs’ ability to use their short-term assets to generate cash or revenue. Moreover, Thai MFIs do not benefit from economies of scale and do not reach the very poor households. This study recommends that MFIs should ensure that their social and financial goals are adequately balanced. It proposes that MFIs use a mixed approach: follow profit maximization principles and embrace technology to minimize operational costs.