Sustainability of commercial microfinance institutions in South Africa

Smit, Nicol (2015-04)

Thesis (MDF)--Stellenbosch University, 2015.


ENGLISH ABSTRACT: The approach to offering financial services to the poor has evolved over the past decades. The microfinance schism between the two paradigms, institutionist and welfarist, has yet to be narrowed by evidence of greater success of the one over the other. The drive for commercialisation of microfinance institutions has spurred many crises across the globe and the validity of the argument that commercial microfinance is more sustainable has come under scrutiny. This research report dissects the sustainability of African Bank and Capitec, two commercial microfinance institutions. Accounting ratios are applied to the audited financial data of both microfinance institutions to measure their sustainability from 2007 up to their most recent audited results. The research has found that both microfinance institutions experienced rapid growth since 2007, primarily driven by larger average loan sizes over longer terms. The research shows that Capitec has more diverse sources of revenue and depends less on its loan portfolio to generate income than African Bank. It also shows that Capitec has a more conservative approach with regard to provisioning for loans, and is consequently better prepared for loan write-offs than African Bank. Overall, Capitec is found to be more sustainable in each period measured.

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