From a development perspective, financial sustainability is not an end in itself. Rather, it is a tool for reaching the maximum number of clients. MFIs may only operate for a limited time, reach a limited number of clients, or be driven more by political goals than by client needs if services are not priced at sustainable levels.
Donors and governments cannot likely provide enough subsidized funds to meet the huge demand for microfinance. Even if there were enough donor and government money, it would be better spent on other development priorities that, unlike microfinance, cannot be delivered without continuing subsidies. Sustainable MFIs have the potential to attract non-subsidized resources to finance expansion of outreach. Experience has even shown that borrowers are more likely to repay lenders who operate without subsidies at they are more confident the institution will be around to give them future loans.
The trade-off between financial viability and reaching very poor people is much less acute than many once thought. A number of financial providers have managed to offer high-quality financial services to very poor people while also covering their costs. Moreover, correlation between MFI profitability and client poverty level has proven to be a statistically weak one. This may be more driven by the vision of particular MFIs than by any inherent unprofitability of low-end microcredit.
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