An Empirical Research On Influential Factors Of Microfinance Financial Sustainability

The problem of poverty is a worldwide problem, which affects the regional political stability and economic development. One of the direct reasons for poverty is the lack of capital. Recently there is a rapid growth of microfinance, which provides us a fresh and powerful weapon in fighting against poverty. The success of microfinance proves it's superior to traditional credit philosophy and financial system, and bringing us the vision of inclusive financial system.Since the early 1970s, after experiencing 30 years' exploration and development, modern microfinance has achieved remarkable success, which has overthrew the prejudiced saying that the poor has no ability to repay loan, and proved us the poor are potential and sustainable clients. Many kinds of microfinance spring up like mushrooms around the world, and some of them are extremely successful. With the worldwide development of microfinance, the sustainability of microfinance organization has been raising much attention.About 700 million people live in the rural area; however 64 percent of rural population has no access to financial service in China. Therefore the development of agrarian finance to satisfy the capital needs of farmers is a non-bypassing way to solve the agriculture-rural areas-farmers problem. In China, as a measure of poverty alleviation, microfinance has been developed for several decades. Compared with the international development stage of microfinance, maturity of Chinese MFIs has been staying at the average level of international society in 1980s, which can hardly have high coverage and sustainability.In this dissertation, the author has analyzed the factors affecting the sustainability of Microfinance organization with an international perspective. Normative and empirical studies are combined in this study, and simultaneously, measures of comparative analysis and multiple linear regression analysis are adopted. The author has firstly analyzed the intrinsic factors affecting sustainability of MFIs, and then compared the gap remains between MFIs in China and other international sustainable institutions. Finally, the factors restraining the development of Chinese MFIs are found and several practical suggestions are proposed to narrow the disparity. The results suggest that factors having obvious positive correlations with sustainability of MFIs are financial information transparency, size of MFIs , capability to attract deposit and asset utilization ratio, relative value of average loan balance per borrower, level of risk management. On the other hand, a factor having obvious negative correlations with sustainability of MFIs is Leverage. Comparative study on MFIs of China and other international institutions suggests that the main reason for unsustainability of Chinese MIFs is that the size of MIFs, interest rate ,asset utilization ratio, capability to attract deposit are all below the average level of that of international sustainable MIFs. In addition, high degree of dependence on contribution and donation results in low financial cost ratio, which covers up the unsustainability of Chinese MFIs. The low wages of staff lead to lower operating cost ratios to cover up the problem of low efficiency of management.Thus, in order to achieve sustainable development, Microfinance institutions of China may loosen interest rate controls, improve management to cut costs and expand financing channels. Further more, improvement of legal and regulatory framework and training of intermediary organizations should be take into consideration.