This study tests the hypotheses that: (i) formal microfinance institutions (MFIs) using their own mobilized financial resources (based on owners’ equity, commercial lending or deposits) for on lending reach non-poor clients and (ii) concentrating on the achievement of financial sustainability causes an institution to target non-poor clients. Using data on 2,691 MFI clients and non-clients from Ghana, we revisit the microfinance argument of serving poorer clients and sustainability, and in addition examine the effect of the source of funds and type of institution on the financial and social objectives of MFIs. Following the correction of endogeneity, our regression analysis shows that unlike financial self-sufficiency, MFIs that are only operationally self-sufficient reach poorer clients, and also, formal institutions dispensing their own funds target non-poor clients. The latter finding suggests the importance of complementary development strategies and a deliberate harmonization of microfinance interventions, irrespective of the source of funds. Keywords: Ghana; microfinance; sustainability; outreach and funds. 1. Introduction Microfinance institutions (MFIs) receive a substantial share of both government and development partners’ planning time and budget. Relying on data from 2005 to 2007 there was a potential annual increase of 55 percenta in outstanding portfolios of development finance institutions to MFIs (Consultative Group to Assist the Poor (CGAP), 2008). In sub-Saharan Africa (SSA), in 2007, Ghana was ranked the highest recipient (about US $186m) of development partner donor funding into microfinance (CGAP, 2008). However, in view of the 2008 global financial crisis and economic turmoil, it is imperative to examine the vulnerability of MFIs’ financial sustainability and their targeting of poor clients. The computation is based on the compound annual growth rate. Journal of Developmental Entrepreneurship Vol. 17, No. 3 (2012) 1250016 (19 pages) © World Scientific Publishing Company DOI: 10.1142/S1084946712500161 1250016-1 Therefore, we provide an empirical investigation into the challenge posed to MFI institutional building by the reliance on external sources of funding. The specific objective is to estimate the effects of financial sustainabilityb and source of funds on client targeting. Microfinance, indicative of reducing poverty from a wider scope of building financial, human, physical and social capital, has received mixed recognition, partly because of distorted evidence about its impact (Khandker, 2005; Roodman and Morduch, 2009; Banerjee et al., 2009; Imai et al., 2010). Architects of microfinance, mainly practitioners, development partners and government, assert its capability. However, some sceptics, mainly academics, question the paradigm’s resilience to the test of time. For instance, Navajas and Gonzalez-Vega (2000), Sautet and Daley (2005) and Ditcher and Malcolm (2007) argue, among other issues, that the disbursement of meagre loan amounts and covariate risk characterizing group methodology, as pioneered by the Grameen model, threaten the success of microfinance. Barr (2005) further questions the ability of microfinance to achieve financial stability through sustained operations to stimulate the economy’s broad financial sector operations and reduce national poverty. Imperative to these concerns is the association and/or causation between an MFI’s financial sustainability and the targeting of poor clients. The remaining sections are organized in the following order. A brief literature review is provided in the next section. In the third section, we situate the discussion in a conceptual framework. The two sections thereafter discuss the methods of study and results, and the final part concludes with some thoughts on policy recommendation. Samuel Kobina Annim Department of Economics University of Cape Coast, Ghana and Lancashire Business School University of Central Lancashire United Kingdom skannim@gmail.com