Abstract

Purpose
This study examines the impact of the increasing adoption of a commercial approach on the financial performance and outreach of Microfinance Institutions (MFIs). Drawing on institutional theory, it investigates whether commercialisation enhances MFIs’ financial performance and outreach, while also considering the risk of mission drift.

Design/methodology/approach
A two-step system Generalized Method of Moments (GMM) estimation is applied to a dataset of 2,102 MFIs across 114 countries over a 15-year period. The study evaluates both traditional financial performance measures such as return on assets (ROA) and operational self-sufficiency (OSS), and outreach indicators, including number of active borrowers (NAB), average loan size (ALS), and new measures such as market share of borrowers (MSB) and market share by assets (MSBA). Robustness checks, including the Arellano-Bond and Hansen test, confirm the validity of the instruments and the reliability of the results. Further, we conducted mean difference tests to confirm the results.

Findings
Results show that commercialisation has no significant effect on the financial performance of MFIs. However, commercialisation is positively associated with breadth of outreach, as reflected in an increased numbers of active borrowers and with the depth of outreach, as reflected in larger average loan sizes. The increase in average loan size suggests a shift away from serving the poorest clients, indicating mission drift. Additional results reveal that overall, commercial MFIs are moving toward larger scale and profitability, but with reduced focus on their traditional social mission.

Originality/value
This paper extends the debate on commercialisation and mission drift in microfinance by using a large cross-country dataset and multiple outreach measures, going beyond previous region-specific studies. It challenges the effectiveness of new outreach indicators like MSBA in dynamic panel models and highlights the trade-offs between social and financial goals. The findings provide valuable implications for policymakers and practitioners, suggesting the need for frameworks that encourage MFIs to balance legitimacy, scale, and sustainability with their original poverty-alleviation mission.