The Geographical Diversification, Depth of Outreach and Credit Quality Affecting the Financial Sustainability of Formal Microfinance Institutions in Vietnam

Abstract

This study analyzed the impact of geographical diversification, depth of outreach and credit quality on the financial sustainability of microfinance institutions (MFIs) in Vietnam. The study used regression analysis on a set of panel data from 2011 to 2020 of all the formal MFIs in Vietnam. The results showed the geographical diversification, deposit-to-loan ratio, and credit quality had positive relationships with financial sustainability; the depth and worth of outreach, and inflation rate had negative relationships with financial sustainability. Graphical diversification is a way of increasing microfinance outreach by expanding the operation of MFIs in many market segments. At the same time, the geographical diversification helps the MFIs invest in many localities and regions that offer greater growth potential than microfinance services. At the same time, geographical diversification, depth of outreach, credit quality, and financial sustainability are the quality, sustainability and outreach evaluation indicators in microfinance, and it is very important to be monitored by MFIs. Through the findings, the study offers policy implications, recommends and helps the managers and policy-makers of formal MFIs to understand this impact, and they should review their policies to ensure that the operations are directed towards financial sustainability.