Microfinance Risks and Sustainability Challenges: A Literature Review

Abstract

This article reviews recent evidence on how financial, social, and institutional risks shape the sustainability of microfinance institutions in an era of expanding financial inclusion and competitive pressure. The study uses a systematic literature review of peer reviewed journal articles published between 2019 and 2023 to consolidate findings on portfolio quality, financial performance, client over-indebtedness, governance, and emerging environmental and digital risks. The results show that resilience depends on the interaction between core financial indicators, such as portfolio quality and cost efficiency, and less visible social risks related to multiple borrowing, coercive collection, and borrower vulnerability. The article discusses the evidence by grouping studies into institutional-level financial risks, client-level social risks, and broader challenges linked to regulation, digitalization, and new models such as green and Islamic microfinance. Overall, the review finds that sustainable microfinance requires integrated risk management frameworks that jointly address financial sustainability, social protection, and long-term mission alignment.