Branch Expansion and Institutional Sustainability of MFIs in Bangladesh

Sustainability of microfinance institutions (MFIs) in relation to branch expansion and related decisions has been widely debated in the microfinance sector. The present study explores the factors that are taken into consideration by the MFIs in Bangladesh while opening a new branch. Specifically, the study examines the locational considerations relating to branch expansion and implications relating to service delivery and other MFI operations. The analysis covers both head office and branch level information collected using stratified random sampling approach ensuring proportional representation of small, medium and large MFIs. The study finds locational characteristics and number of potential borrowers as the most important factors while deciding on opening a new branch.The decision on branch location responds to three main considerations: (i) reducing cost of loan operation; (ii) serving target people in remote areas; and (iii) implementing targeted programs. It is seen that very large and medium categories of MFIs have greater incentives for branch expansion relative to large and small categories while larger MFIs tend to establish new branches close to growth centres.