Sources of Revenues and Assets Allocation at MFIs

To be sustainable businesses, microfinance institutions (MFIs) must cover all expenses with their own revenues. If revenues are more than expenses, the MFI is sustainable and can keep operating without the need for subsidies; if revenues are less than expenses, the MFI needs subsides in order to cover all its costs. The main sources of revenues for MFIs are interest, fees and commissions on loan portfolios, and they represent on average 90 percent of all financial revenue. One problem with this high dependency on revenue associated with loans is that an increase in expenses can be covered in only one of two ways: 1) by increasing the interest rates, fees or commissions, all paid by the borrowers, or 2) from other subsidies. Therefore, understanding the sources of revenue used by MFIs may be useful for those institutions that are looking at generating additional revenues or diversifying their current sources.