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Introduction
The sustainability of microfinance institutions (MFIs) in South Africa is a complicated topic requiring in-depth analysis. Few microfinance organizations manage to provide responsible treatment for South African citizens. For instance, some sources suggest that such institutions profit off citizens of Africa, and therefore, people fall into debt to pay off high interest (Fokapu, 2017). The topic requires investigation because the information on financial sustainability in South African microfinance institutes is still limited.
Sustainable Microfinance Institutions in South Africa
It is necessary to undertake the research because little is known about the influence of financial leverage on South African microfinance organizations. The main argument of the study is the impact of financial leverage on South African MFIs, and it is vital to examine its effect. Financial leverage is an essential concept in arguing for the sustainability of South African organizations. Some key concepts include microcredits, loans, micro-franchise, and the level of sustainability in MFIs (Chikalipah, 2017). Several studies were held in the field of finances and economics in South Africa. From previous studies, it is already known that MFIs are popular among severely poor citizens of Africa (Fokapu, 2017). However, MFIs do not always manage to complete requests appropriately.
It is essential to mention that financial leverage is a concept describing the effect of using borrowed money to increase economic activity without having sufficient capital. Some other sources claim that microfinance institutions in South Africa depend on ‘donor funding to survive’ (Chikalipah, 2017, p. 182). It means that the influence of financial leverage on African MFIs is significant, and these organizations might not operate without extra funding. Furthermore, it gives a prompt about the insufficient sustainability of MFIs in South Africa and its need to borrow financial sources.
Conclusion
Overall, the impact of financial leverage on South African MFIs is not always positive in establishing microfinance sustainability. When MFIs borrow funding, they are not able to pay it off, as South African citizens cannot pay high-interest rates. Poverty and poor conditions influence the stability of citizenship and MFIs, and it becomes complicated to complete financial obligations. Therefore, financial leverage does not constantly improve the sustainability of South African microfinance institutions.
References
Chikalipah, S. (2017). Financial sustainability of microfinance institutions in sub-Saharan Africa: Evidence from GMM estimates. Enterprise Development and Microfinance, 28(3), 182–199.
Fokapu, A. (2017). Microfinance in Africa. Medium.
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