Sustainable development of microfinance customers: An empirical investigation based on India

Abstract

Purpose The purpose of this paper is to examine whether microfinance activities aimed at the bottom of the pyramid consumers are sustainable. Design/methodology/approach The study follows a mixed methodology, manager’s views on sustainability of the programs were gauged by analyzing their responses in the areas of diversion of funds, operating cost, interest rates, and return rate of loans through semi-structured interviews. A survey was administered to 316 poor microfinance borrowers at the bottom of the pyramid in India in a cross-sectional field study format. The study used one sample t-test to test the sustainability of the microfinance activities. Findings All else being the same, microfinance activities aimed at the borrower’s communities are not sustainable. The major contributor to the lack of sustainability is the diversion of funds, results of both managers’ interviews and consumer survey provides strong evidence to support this. Though there are issues related to high interest rate, operating cost and low return on investment, it seems that the core issue behind all this is lack of full investment in the microfinance venture.

Research limitations/implications The study was limited to only two states in India. The mixed nature of the study meant that semi-structured interviews with a relatively small sample were the most appropriate method to address the research question. Future studies with larger, more representative sample sizes are encouraged to investigate how the findings can be generalized to larger populations. Also the information which determines the experiences and satisfaction of the consumers is collected only once. This study does not account for any changes over time in the populations or their interest. Originality/value The impact of micro finance in alleviating poverty is questioned by researchers and there is demand for further empirical evidence. Therefore, the findings of this study complement with existing work to present a comprehensive understanding of this topic by investigating the sustainability aspect of these programs from the dimension of both customers and lenders