Exploring the role of microfinance institutions in promoting financial sustainability and alleviating poverty in Ghana

Abstract The research selected 11 microfinance institutions (MFIs) with sufficient indicator reports in the MIX market database from 2000–2019. The data are then analyzed via a multivariate technique. The study aimed to provide insights into the elements that contribute to the financial viability of microfinance organizations and how this impacts financial depth and poverty alleviation. The study's findings suggest that the depth of outreach, operational expenditures, and loan size of microfinance organizations in Ghana are significant elements that promote financial sustainability. Research has shown that a developing financial system has the potential to enhance the financial status of microfinance firms. Nevertheless, while microfinance organizations are designed to mitigate vulnerability, it is apparent that the financial stability of these institutions does not effectively alleviate poverty in Ghana. The results indicate that the dependency ratio, depth and breadth of outreach, and cost per borrower are factors that significantly affect the financial sustainability of microfinance institutions in the country. Moreover, there was no significant nexus between financial sustainability and the capital structure of these institutions. Hence, the research proposes that microfinance institutions in Ghana should prioritize reducing their reliance on contributed money to achieve operational efficiency and ensure long-term financial viability. Additional research might explore the spatial aspects of MFIs to analyze the connections between the variables being studied.

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