International Journal of

Business & Management Studies

ISSN 2694-1430 (Print), ISSN 2694-1449 (Online)
DOI: 10.56734/ijbms
The Effect of the Global Financial Crisis on the Cost Structure and Double Bottom Line Goal of Microfinance Institutions


The objective of Microfinance institutions (MFIs) is often two-fold; the so-called double bottom line of seeking financial return sustainability, while also maximizing the social impact of their services on the lives of the poor individuals they serve. The pursuit of the social impact bottom line puts microfinance institutions in a peculiar position with regards to the response of their cost structure to the global financial crisis. This paper begins by investigating the impact of the global financial crisis on the cost structure, and cost inefficiencies of MFIs given their double bottom line pursuits. Overall, it appears that achieving growth in both dimensions of social impact and financial sustainability, grew more costly for the MFIs directly because of the global financial crisis. Moreover, given the risk-adjusted nature of the cost inefficiency measure used in the paper, the results show that maintaining a given level of risk in the loan portfolios became significantly more challenging for MFIs after the global financial crisis. In addition, the analysis performed here finds that more than two-thirds of the institutions in the industry are operating under economies of scale, although the proportion decreased after the global financial crisis. This suggests that some progress is evident towards broader achievement of the cost benefits of scale, but that the industry on average still has room for consolidations, mergers, and acquisitions. The analysis uses a time-invariant panel Stochastic Frontier Analysis with standard errors clustered at the country level. The data, from the Mix Market database, comprises 1400 Microfinance institutions across 108 countries.