The Role of Subsidy Uncertainty in Mission Drift of Microfinance Institutions of Asia

This study sheds light on the mission drift arguments for 149 MFIs working in continent Asia over the period 2003 to 2013. The mission drift is captured by average loan size, total number of borrowers and lending rate. The study finds positive and significant relationship of average loan size with average profit and cost. These results indicate that increase in loan size results in increase in cost and this reduces outreach. The result shows that high subsidy uncertainty increases the interest rate and reduces the outreach of MFIs suggesting that subsidy must be less uncertain to avoid mission drift. The study also finds that subsidy uncertainty increases the average loan size, therefore core poor are not served. The implications that emerged from findings are that cost efficiency is very important, as cost efficiency increases, loan size becomes small, which ultimately fulfil the promise of maximum outreach to the core poor clients. The findings suggest for subsidy donors and Government need to make more clear policies regarding the disbursement timing and amount of subsidy. This will reduce the ambiguity about subsidy in MFIs and let them work more confidently on their mission.