The Challenge

Wholesale lending—which provides large-scale capital to financial intermediaries (such as microfinance institutions) that in turn lend to female entrepreneurs growing their businesses—is a crucial source of lending that influences credit supply. This is particularly the case in sub-Saharan Africa and South Asia, where financial markets are generally less developed and have large populations of underserved groups, such as women. However, despite the significant role of wholesale lending, a significant knowledge gap exists regarding how it affects microfinance institutions’ ability to balance financial sustainability with social impact.

The Study

Researchers conducted a study to examine how wholesale funding structures affect MFIs’ and commercial banks’ lending to women. The study involved two stages.

In the first stage, researchers conducted a literature review to understand how MFIs and commercial banks achieve scalability and sustainability in wholesale lending with a focus on women. Specifically, they assessed how MFIs balanced financial sustainability, regulatory compliance, and social impact within diverse institutional and cultural contexts, focusing on funding structures, variations in regulatory and social environments, and gender outreach.

In the second stage, researchers conducted an exploratory analysis of microfinance data to rigorously evaluate how wholesale funding affects MFIs’ lending behavior toward women. To do this, they analyzed data from two global microfinance datasets, the MIX Market and ATLAS Databases, for nine countries in South Asia and sub-Saharan Africa: India, Bangladesh, Pakistan, Kenya, Tanzania, Rwanda, Uganda, Ethiopia, and Senegal.

Results

The literature review yielded several key learnings about wholesale debt funding by MFIs. First, MFIs appear to achieve scalability and sustainability by relying on stable, cost-effective funding through balanced borrowing and savings practices, while relying less on donor funding. This is because while donor funding allows MFIs to engage in poverty outreach and serve more women, it comes with higher operating costs, which limit sustainability, and thus pose potential risks of mission drift. The literature review also found limited evidence on how wholesale debt markets affected MFIs’ social and financial performance.

The data analysis, on the other hand, encountered significant challenges. The datasets had missing information on key indicators, including funding structures, risk-sharing mechanisms, and social performance, for a majority of the countries. This prevented the researchers from rigorously evaluating, using these datasets alone, how wholesale funding affects MFIs’ lending practices toward women.