The Correlation Analysis Of The Twin Goals Of Microfinance

Microfinance refers to the financial services for poor and low-income clients offered by providers that identify themselves as "microfinance institutions"(MFIs). In practice, microfinance has the twin goals of—reaching the poor and being financially sustainable. With microfinance becoming increasingly commercialized, the relationship between addressing the financial needs of the poor, and ensuring the institutional sustainability of microfinance providers is increasingly crucial, while the debate remains. The welfarisms believe that in order to achieve financial sustainability, MFIs’goal of improving social welfare could be biased. In this sense, maximizing the potential of the welfare gain is the most important. However, from a development perspective, financial sustainability is not an end in itself. Rather, it is a tool for reaching the maximum number of clients as indicated by the institutionalisms. Thus in this paper I’d like to study the trade-off of the twin goals to find a better strategy for the development of microfinance in China.This paper has six chapters. Chapter one is introduction, including the background statement and research questions. I also summarize the methodology used in this paper, both theoretical and empirical.Current studies that far from getting to a consensus in the relationship of the twin goals of microfinance are discussed in chapter two. As the research object, methods, and the understanding of relevant concepts, the findings of a study of twin goals draw different conclusions.Chapter three describes the development of microfinance in China. I analyze the characteristics and issues of the four development stages. Combined with the current situation of microfinance, I reveal the importance of MFIs in emerging regions and agriculture sector.Chapter four covers the various theories and evaluation systems for microfinance. This chapter also provides theoretical support for the debating relationship between the twin goals of microfinance. I conclude that they may conflict in the short run, but from a development perspective, financial sustainability is not an end in itself, it would foster the welfare gains by reaching the maximum number of clients.Data and empirical analysis are in chapter five. My sample includes284MFIs in Shandong Province in China. The empirical results show that in current situation, the two goals are enhancing each other. I also focus on how different factors affect this relationship in various ways.Chapter six concludes. Based on my research, I propose four suggestions for the policy makers, including:increasing loan interest rates; providing donor and government subsidiary for MFIs; expanding business lines of MFIs; loosing the financial ratios of MFIs.