IMPACT OF FINANCING SOURCES ON FINANCIAL SUSTAINABILITY OF MFIS

Abstract

This study investigates the impact of various financing sources, retained earnings, deposits, donations, commercial borrowing, and equity, on the financial sustainability (FSS) of microfinance institutions (MFIs), while introducing the Development State of the Economy (DSE) as a moderating variable. Employing a positivist, quantitative research design, the study utilizes secondary data from the Microfinance Information Exchange (MIX) covering 111 MFIs across two distinct economic contexts: a developed economy (United States) and a developing one (Pakistan). Through moderated multiple regression (MMR) analysis, the study reveals that financing sources have heterogeneous effects on FSS, significantly influenced by the economic development context. Deposits and equity consistently enhance sustainability, while donations and commercial debt negatively affect it. However, retained earnings, equity, and donations show markedly stronger positive effects in developed economies, suggesting that institutional and macroeconomic infrastructure plays a critical role in shaping financial outcomes. The findings underscore the importance of context-sensitive financing strategies and offer practical insights for MFI managers, policymakers, and development agencies aiming to promote sustainable financial models in diverse economic settings. This research contributes to the broader literature on microfinance by highlighting the contingent nature of financing efficacy and advocating for tailored approaches to MFI sustainability.

Keywords: Financial Sustainability, Financial Self-Sufficiency, Financing Sources, Development State of the Economy, MFIs