Microfinance Performance and Economic Development in African Countries

In this chapter, we examine the relation between microfinance sustainability, social performance and economic development in Africa. In the full sample, we found no relationship between various measures of MFI sustainability, social performance and economic development. In terms of MFI financial/profitability indicators, we find that the provision of deposit and lending services by MFIs promotes or drives economic development. When we drill down deeper, we find that in high-income countries, indicators of MFI social performance such as the number of active borrowers, the average loan size and the percentage of female borrowers are significantly related to economic development. The number of active borrowers and the percentage of female borrowers are positively related to economic development, whilst the average loan size is negatively related to economic development, suggesting that when MFIs focus on their core mission of lending to the poor, this promotes economic development in high-income countries. In low-income countries, the provision of subsidies was found to be positively related to economic development.