Effect of Regulations on Financial Performance and Outreach of MFIs

Abstract

The purpose of the study is to determine the effect of regulation status of MFIs on their financial performance and outreach. To find results, we used dataset of 413 MFIs over 21 Latin American Countries for the year 2005-2017. Using GMM, we found that regulated MFIs are more concerned for serving better off clients that decrease their cost per borrowing and improve financial performance. On the other side, unregulated MFIs also serve poor clients as they do not require to pay compliance cost. However, it increases their CPB that is compensated by serving better of clients. The findings are helpful for policy recommendations. Regulatory institutions must consider the cost of diminished level of outreach depth while valuing the benefits of regulation compliance with an eye to improve depositors’ protection and constancy of MFIs.