The capital structure of lending institutions has become an increasingly prominent issue in the world of finance. Contemporaneously, microfinance institutions (MFIs) have risen to the forefront as invaluable lending institutions in the development process. Since capital constraints have hindered the expansion of microfinance programs and microfinance organizations have had various degrees of sustainability, the question of how best to finance these organizations is a key issue. This paper explores how changes in capital structure could improve MFI efficiency and financial sustainability. I find causal evidence supporting the assertion that increased use of grants by large MFIs decreases operational self-sufficiency.

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