scholarly journals Capital structure and financial sustainability of Microfinance Institutions (MFIs) in Rwanda

2021 ◽  
Vol 2 (1) ◽  
pp. 6-26
Author(s):  
Jean Marie Rutanga ◽  
Jonas Barayandema ◽  
Samuel Mutarindwa
Keyword(s):  
Capital Structure ◽  
Fixed Effects ◽  
Data Availability ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Return On Assets ◽  
Share Capital ◽  
Self Sufficiency ◽  
Significant Difference ◽  
Retained Earnings

The aim of this study was to assess the effect of capital structure on financial sustainability of microfinance institutions (MFIs), and find out the extent to which capital structure affects financial sustainability of MFIs in Rwanda. Data was collected from annual financial reports of MFIs and SACCOs for the period 2014-2018. Due to data availability, only a panel of 20 MFIs and SACCOs was considered using fixed effects OLS regression models. Findings from this study reveal that the use of debt as financing sources adversely affects firms‘ financial self-sufficiency and performance. In contrast, the use of share capital strongly improves firms‘ operational and financial sustainability as well as their return on assets. Using retained earnings moderately and positively increases firm‘s financial sustainability. Results from sample splits show that compared to MFIs, SACCOs are more likely to be adversely affected by debt financing than their MFI counterparts. With respect to share capital, there is significant difference between the two groups. Using share capital to finance MFIs‘ investments significantly increases their return on assets, their operational and financial self-sufficiency. With respect to SACCOs, results show that using share capital as means of financing firms‘ assets negatively and significantly affects their return on total assets as well as their operating and financial self-sufficiency.

scholarly journals Microfinance institutions’ operational self-sufficiency in sub-Saharan Africa: empirical evidence

2021 ◽  
Vol 6 (1) ◽  
Author(s):  
Laxmi Remer ◽  
Hanna Kattilakoski
Keyword(s):  
Empirical Evidence ◽  
Cost Management ◽  
Sub Saharan Africa ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Return On Assets ◽  
Industry Development ◽  
Management Measures ◽  
Self Sufficiency ◽  
Sub Saharan

AbstractThe topic of financial sustainability in microfinance institutions has become more important as an increasing number of Microfinance Institutions (MFIs) seek operational self-sufficiency, which translates into financial sustainability. This study aims to identify factors that drive operational self-sufficiency in microfinance institutions. To accomplish this, 416 MFIs in sub-Saharan Africa are studied and several drivers for operational self-sufficiency are empirically analyzed. Results indicate that these drivers are return on assets, and the ratios total expenses/assets and financial revenues/assets. The results imply that MFIs should encourage cost-management measures. They also reveal that there may not be a significant tradeoff in self-sufficiency and outreach. These findings will enable microfinance institutions worldwide to sharpen their institutional capabilities to achieve operational self-sufficiency and also provide policymakers with more focused tools to assist industry development.

scholarly journals Capital Structure and Its Role on Performance of Microfinance Institutions: The Ugandan Case

2013 ◽  
Vol 2 (3) ◽  
pp. 86 ◽  
Author(s):  
Haruna Sekabira
Keyword(s):  
Food Security ◽  
Capital Structure ◽  
Central Bank ◽  
Interest Rates ◽  
Poverty Reduction ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Share Capital ◽  
Funding Sources ◽  
Promising Tool

<p>Micro Finance Institutions (MFIs) rejuvenate economic prowess in developing countries, after severe shocks like wars, droughts and floods. MFIs are a promising tool to tackle poverty and improve food security. Sustainability of MFIs based on their capital structure ensures sustainability in poverty reduction and improved food security. The limited literature on the impacts of capital structures on MFI performance necessitated the study. Panel data from 14 MFIs was collected based on availability and accessibility. The sources of data were financial and income statements covering five years. Econometric analysis using STATA software was done following methodologies of Bogan and Rosenberg. MFIs lent to both individuals and groups and 79% were not regulated by the Central Bank, 86% had their funding sources as loans, grants, excluding deposits/savings and 73% attained operational self-sufficiency. Debt and grants were negatively correlated to operational and financial sustainability. When sustainability was more constricted to financial sustainability, debt and share capital remained noteworthy. Other than grants, debt was paid back on competitive market interest rates most especially debts from money lenders, whereas share capital fetched in revenues to the MFIs at market interest rates from the borrowers. Grants and debt had a substantialdamagingconsequence on MFI performance. Capital structure was essential in MFIs’ sustainability. MFI specific characteristics, like management were also important. Subject to sampling uncertainties, the results indicate that adding to regulation by Central Bank, MFIs must specialize their lending to reduce portfolio at risk. MFIs must reduce dependence on debts and grants and resort to accumulating share capital for long-term sustainability.</p>

scholarly journals Female on boards and the risk-taking of microfinance institutions: The moderating role of outreach

2020 ◽  
Vol 16 (2) ◽  
pp. 19-34
Author(s):  
Michael Adusei
Keyword(s):  
Risk Taking ◽  
Fixed Effects ◽  
Positive Impact ◽  
Microfinance Institutions ◽  
Female Representation ◽  
Return On Assets ◽  
Omitted Variable Bias ◽  
Variable Bias ◽  
Moderating Role

This study examines the effect of female on boards on risk-taking with data from 401 microfinance institutions (MFIs) drawn from 64 countries. The study also investigates whether the effect is sensitive to the outreach performance of MFIs. The MFIs sampled for this study are spread across the six MFI regions. The study measures MFI risk by its risk-taking Z-score and risk-adjusted return on assets. The fixed effects estimation technique, known to overcome the omitted variable bias, is deployed to analyze the data. The results show that female representation in the boardroom increases the risk-taking of MFIs. However, when female on boards interacts with the depth of outreach performance of an MFI, its positive impact on MFI risk is observed. It suggests that female directors are more likely to be beneficial to risk management in MFIs that lend more to indigent clients. Several tests, including an instrumental variable test for endogeneity, have been conducted to confirm the robustness of these results.

scholarly journals Financial Sustainability and Corporate Social Responsibility Under Mediating Effect of Operational Self-Sustainability

2020 ◽  
Vol 11 ◽  
Author(s):  
Rai Imtiaz Hussain ◽  
Shahid Bashir ◽  
Shahbaz Hussain
Keyword(s):  
Corporate Social Responsibility ◽  
Social Responsibility ◽  
Financial Performance ◽  
Mediating Effect ◽  
Financial Sustainability ◽  
Strong Positive Correlation ◽  
Microfinance Institutions ◽  
Self Sufficiency ◽  
Employee Attraction ◽  
Corporate Social

Operational and financial sustainability have, over time, remained as issues in the microfinance industry. The microfinance industry is struggling to gain self-sufficiency in Pakistan due to non-performing loans and operating costs. Simultaneously, deliberation on corporate social responsibility (CSR) is also considered in academic literature and organizational practices. However, studies on CSR and financial performance in the microfinance sector are scarce, especially in Pakistan. CSR will develop customer attraction and loyalty, employee attraction, motivation and commitment, MFIs' reputation and access to capital, and eventually build financial performance. Interviews were conducted with branch managers of microfinance institutions to test previous questionnaires. A self-administered survey was conducted to collect data from the managers of the microfinance banks operating in Punjab. Descriptive and inferential statistics were performed to answer research questions using Smart PLS. Most of the microfinance institutions believe in social responsibilities but lacks fund allocation and approval from higher management, and results are in line with prior studies. These empirical findings lead to the perception that CSR is not a barrier performance in microfinance banks as they have access to capital. The results indicated a strong positive correlation between CSR and the financial performance of the MFIs. CSR also positively correlates with customer retention, employees' motivation and attraction, and business reputation. CSR was associated with access to capital but was found to be weak. The research also narrated the limitation and practical implications of the study. The study also discusses further research directions.

scholarly journals PENGARUH KEDALAMAN JANGKAUAN PEMBIAYAAN TERHADAP KEBERLANJUTAN KEUANGAN LEMBAGA KEUANGAN MIKRO SYARIAH

2019 ◽  
Vol 4 (1) ◽  
pp. 15
Author(s):  
RAMEL YANUARTA RE ◽  
HULWATI HULWATI ◽  
ROZALINDA ROZALINDA
Keyword(s):  
Regression Models ◽  
Financial Statements ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Return On Assets ◽  
Average Value ◽  
Urban Village ◽  
Poor Households ◽  
Dependent Variables ◽  
Multiple Regression Models

Analysis of the sustainability of the microfinance institutions cannot be separated from its outreach. This study aims to analyze the effect of the depth of outreach on financial sustainability in the Koperasi Jasa Keuangan Sharia Baitul Maal wa Tamwil (KJKS BMT) kelurahan Kota Padang. This study is an analysis of causality. The analysis was carried out for two years of financial statements, 2014 and 2015. Samples were taken using a purposive sampling approach. The financial sustainability issues are analyzed with two variables, namely return on assets (ROA) and non-performing financing (NPF) which are used as dependent variables in multiple regression models. As independent variables, the average value of financing provided by the KJKS BMT kelurahan Kota Padang is used as a proxy for the level of the depth of outreach and several other control variables. The results of this study reveal that there is a trade-off between the depth of outreach from financing services to poor households to the BMT KJKS kelurahan Kota Padang and financial sustainability as is the case in conventional microfinance institutions. So, naturally in practice there will be reluctance in the KJKS of BMT Kota Padang urban village to provide financing services to poor households because of their negative financial performance.

scholarly journals RE-EVALUATING SUSTAINABILITY OF MICROFINANCE INSTITUTIONS BY USING TOPSIS

2019 ◽  
Vol 7 (2) ◽  
pp. 581-589
Author(s):  
Muhammad Saad ◽  
Hasniza Mohd Taib ◽  
Abul Bashar Bhuiyan
Keyword(s):  
Multicriteria Decision Making ◽  
Threshold Level ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Bottom Line ◽  
Self Sufficiency ◽  
Order Preference ◽  
Regulatory Bodies ◽  
Composite Scores ◽  
Practical Implications

Purpose: The measurement of sustainability for microfinance institutions (MFIs) has been a serious problem for both practitioners and researchers over the last few decades. A multicriteria decision-making approach is used to develop an index that measures the sustainability of microfinance institutions based on the double bottom line. Methodology: The sustainability score of MFIs operating in Pakistan for the year 2006-2015 is measured using the technique for order preference by similarity to ideal solution (TOPSIS). During the assessment, equal weights are assigned to all indicators of sustainability. Additionally, a hypothetical organization was assigned the industry threshold to generate composite scores using TOPSIS. Later, sustainability levels of individual MFIs were compared with this industry threshold. Findings: Microfinance institutions that attain higher financial sustainability and positive outreach are ranked high. The result shows that the threshold sustainability level of the microfinance sector in Pakistan from 2006-2015 was 23.52, 26.31, 23.80, 45.83, 45.83, 66.67, 77.77, 91.60, and 88.88 percent respectively. Although the sustainability level in 2015 decreases with respect to 2014, still the overall growth of the sector is remarkable. Practical implications: The results obtained from TOPSIS for evaluating the sustainability of MFIs under the double bottom line highlight its practical applicability. MFIs are under immense pressure by regulatory bodies, investors, donors, and financial experts to achieve sustainability. This index would help MFIs to track progress and improve their sustainability. Novelty/Originality: This study is the first of its kind to determine the sustainability of MFI by using all the four indicators of sustainability, including financial self-sufficiency, operational self-sufficiency, depth of outreach and breadth of outreach. Existing sustainability indicators does not provide the threshold level of sustainability. Instead, they provide a ranking of MFIs from top to bottom only. This study is novel to identify whether MFIs have met or failed to achieve sustainability by providing the threshold level.

scholarly journals The Determinants of Capital Structure: Evidence from GCC and UK Real Estate Sectors

2019 ◽  
Vol 27 (2) ◽  
pp. 108-125 ◽  
Author(s):  
Ibrahim Yousef
Keyword(s):  
Real Estate ◽  
Capital Structure ◽  
Fixed Effects ◽  
Negative Impact ◽  
Positive Impact ◽  
Bivariate Analysis ◽  
Tobit Regression ◽  
Pecking Order ◽  
Trade Off ◽  
Retained Earnings

Abstract This paper investigates the determinants of capital structure in the context of the Gulf Cooperation Council (GCC) and United Kingdom (UK) real estate sectors. The results of a bivariate analysis indicate that leverage in the UK is much higher than in GCC countries. This may be attributable to UK companies facing a lower cost of debt, which would facilitate their raising of debt capital from the market. In addition, UK real estate firms tend to be larger and have higher levels of tangibility and retained earnings compared with GCC firms, while GCC firms tend to be more profitable and have more growth opportunities. The results of panel and Tobit regression analyses support both trade-off and pecking order theories; for instance, company size was found to have a significant positive impact on different types of debt measurements (market and book debt ratios), which is consistent with the trade-off theory, while profitability and retained earnings to total assets exhibited a significant negative impact for GCC and UK real estate firms, which is consistent with the pecking order theory. Importantly, these results hold true regardless of whether the regressions are estimated using an OLS, random effects, fixed effects panel estimation or a Tobit model.

scholarly journals Determinants of Financial Sustainability for Microfinance Institutions: Lessons for Islamic Microfinance Banks in Nigeria

2021 ◽  
Vol 8 (Special Issue) ◽  
pp. 301-320
Author(s):  
Abdurrahman Abdullahi ◽  
Anwar Hasan Abdullah Othman
Keyword(s):  
Capital Structure ◽  
Financial Services ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
The Poor ◽  
Research Findings ◽  
Islamic Microfinance ◽  
Asset Size ◽  
Good Risk ◽  
Economic And Financial Crisis

Islamic microfinance institutions play a major role in the provision of financial services to the poor and underprivileged through non-interest, equity-based products and services. To achieve these critical objectives, however, they need to be financially sustainable, which is threatened by the current economic and financial crisis caused by the Covid-19 pandemic. The objective of this paper is to review the determinants of financial sustainability of microfinance institutions with a view to drawing lessons for Islamic microfinance banks in Nigeria. The paper utilized the literature review methodology to synthesize research findings in the area. The review revealed that the major determinants of financial sustainability of microfinance institutions are the capital structure, asset size, and financial innovation. Others are good risk management and corporate governance frameworks. The paper thus recommended that Islamic microfinance institutions in Nigeria should maintain a robust capital structure that relies more on equity, a lean but diversified Board, and utilize more technology-based services. Most importantly, they should emphasize profit and loss sharing principles in their operations.

scholarly journals TARGETING THE POOR VERSUS FINANCIAL SUSTAINABILITY AND EXTERNAL FUNDING: EVIDENCE OF MICROFINANCE INSTITUTIONS IN GHANA

2012 ◽  
Vol 17 (03) ◽  
pp. 1250016 ◽  
Author(s):  
SAMUEL KOBINA ANNIM
Keyword(s):  
Regression Analysis ◽  
Development Strategies ◽  
Financial Resources ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
External Funding ◽  
The Poor ◽  
Self Sufficiency ◽  
Using Data ◽  
Type Of Institution

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.

scholarly journals Is Age a Criterion for Sustenance of Microfinance Institutions?

2017 ◽  
Vol 4 (01) ◽  
Author(s):  
R. Rupa
Keyword(s):  
Low Income ◽  
Financial Services ◽  
Age Groups ◽  
Microfinance Institutions ◽  
Operating Expense ◽  
Return On Assets ◽  
Loan Portfolio ◽  
Self Sufficiency ◽  
Better Than

Microfinance is defined as provision of financial services to low income clients. The institutions offering financial services and banking opportunities to the unbankable population are called as Microfinance Institutions (MFIs). The study aims to compare the MFIs of India and Bangladesh, two fast growing economies of the South Asian region of the world, based on the classification of their age as new, young and mature. Kruskal Wallis test is used to find which category has done better than other two categories on different financial performance indicators. The findings show that on the basis of age groups, mature MFIs have shown better performance in terms of breadth of outreach, return on assets, operational self-sufficiency, profit margin, total expense to assets, financial expense to assets, operating expense to loan portfolio, cost per borrower, loan per staff member, and risk coverage.

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