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 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 Does bank regulation and supervision impedes the efficiency of microfinance institutions to eradicate poverty? Evidence from ASEAN-5 countries

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nurazilah Zainal ◽  
Annuar Md Nassir ◽  
Fakarudin Kamarudin ◽  
Siong Hook Law
Keyword(s):  
Poverty Reduction ◽  
Bank Regulation ◽  
Financial Sustainability ◽  
Microfinance Institutions ◽  
Social Efficiency ◽  
Financial Efficiency ◽  
Content Type ◽  
Regulation And Supervision ◽  
The Social ◽  
Bank Regulation And Supervision

Purpose The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the MFIs from the aspect of social and financial efficiency because the MFIs nowadays not only view to sustain the social role of poverty eradication but in the same time they must strive the financial sustainability to maintain the operation in long run. This study also includes the macroeconomic condition and firm level variables to control for social and financial efficiency of the MFIs. Design/methodology/approach The data consists 168 MFIs from five countries in Southeast Asia from year 2011 to 2017. First stage of analysis is to identify level of social and financial efficiency by using data envelopment analysis approach. Second stage is to examine impact of bank regulation and supervision to the social and financial efficiency by applying panel regression analysis and generalized method of moments for robust estimation methods. Findings The finding shows the MFIs own lower social efficiency and higher score in financial efficiency. This indicates in pursuing financial sustainability, the MFIs in Southeast Asia countries have lost sight of their original mission of poverty reduction. Furthermore, the result also presents a significant impact of bank regulation and supervision to the social and financial efficiency of the MFIs. However, the results appear in different direction when more negative effect is associated with social efficiency. This specifies that bank regulation and supervision are not appropriate to accommodate the social needs, thus hampering the effort of poverty reduction by the MFIs. Research limitations/implications The present study only concentrates on the impact bank regulation and supervision to the performance of the MFIs. As the operation of the MFIs currently has been largely exposed in banking operation, it is suggested that future studies to look for other special issues such as country governance that might influence specifically in social and financial aspect of the MFIs. Practical implications The empirical findings from this study could be useful and may have significant implications for the regulators. The regulators or policymakers could establish the new regulation framework that fulfil the dual needs (social and financial) of the MFIs. Furthermore, the empirical findings also could serve as guidance to regulators and decision-makers in designing new policies for a sustainable and competitive sector of the MFIs. Although the MFIs recently brings a similar role as commercial banks, they need to retain the social aspects as that is the original mission of the MFIs Originality/value The present study proves that the bank regulation and supervision have brought a significant influence to the performance of the MFIs in ASEAN 5 countries.

Farmers' preferences and willingness to pay for microcredit in Benin: results from in-the-field choice experiments in Benin

2020 ◽  
Vol 80 (5) ◽  
pp. 665-692 ◽  
Author(s):  
Tchekpo Fortune Ogouvide ◽  
Ygue Patrice Adegbola ◽  
Roch Cedrique Zossou ◽  
Afio Zannou ◽  
Gauthier Biaou
Keyword(s):  
Willingness To Pay ◽  
Interest Rates ◽  
Rural Areas ◽  
Financial Services ◽  
Poverty Reduction ◽  
Latent Class ◽  
Microfinance Institutions ◽  
Choice Modelling ◽  
Attribute Importance ◽  
Content Type

PurposeThis document analyses farmers' preferences and willingness to pay (CAP) for microcredit, in order to facilitate their access in rural areas.Design/methodology/approachData are based on a discrete choice experiment with 400 randomly selected farmers from 20 villages of the 7 Benin agricultural development hubs (ADHs). The preference choice modelling was performed using mixed logit (MXL) and latent class logit (LCL) models. Farmers' willingness to pay for each preferred attribute was estimated. The endogenous attribute attendance (EAA) model was also used to capture attribute non-attendance (ANA) phenomenon.FindingsThe results indicate that, on average, farmers prefer individual loans, low interest rates, in kind + cash loans, cash loans, disbursement before planting and loans with at least 10-month duration. These preferences vary according to farmers' classes. Farmers are willing to pay higher or lower interest rates depending on attribute importance. The estimate of the EAA model indicates that, when taking the ANA phenomenon into consideration, people will show stronger attitudes regarding WTP for important factors.Research limitations/implicationsBased on these results from Benin, microfinance institutions (MFIs) in developing countries can, based on the interest rates currently charged, attract more farmers as customers, reviewing the combination of the levels of the attributes associated with the nature of the loan, the type of loan (individual or collective), the disbursement period of funds, the waiting period of the loan and the loan duration. However, the study only considered production credit, ignoring equipment or investment credit.Practical implicationsThe document provides information on the key factors that can facilitate producers' access to MFI products and services.Social implicationsFacilitating small farmers' access to financial service will contribute to poverty reduction.Originality/valueThis research contributes to the knowledge of the attributes and attribute levels favoured by farmers when choosing financial products and the amounts they agree to pay for these attributes. The implementation of the results would facilitate small producers' access to financial services; thus contributing to poverty reduction.

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 Effect of Regulation on Outreach of Microfinance Institutions in Ghana

2019 ◽  
Vol 9 (1) ◽  
pp. 317 ◽  
Author(s):  
Joyce Ama Quartey ◽  
Bernice Kotey
Keyword(s):  
Central Bank ◽  
Research Design ◽  
Financial Services ◽  
Small Businesses ◽  
Mixed Methods Research ◽  
Poverty Reduction ◽  
Growth Potential ◽  
Microfinance Institutions ◽  
The Poor ◽  
The Government

Microfinance institutions (MFIs) play an important role in enhancing the growth potential of small businesses. However, while regulation ensures that MFIs are financially sustainable, compliance compels them to make large-sized loans to wealthy clients in order to reduce the risk of lending and minimize administrative costs, a situation that compromises their main goal of reaching out to the poor. The study therefore, examined the effect of regulation on breadth and depth of outreach by microfinance institutions (MFIs) in Ghana. The purpose of the study is to find out whether regulation has enabled MFIs to increase their outreach (breadth and depth) thereby improving their sustainability. A mixed methods research design was employed, involving initial hypotheses testing with 31 self-regulated and 24 Central bank-regulated MFIs. The findings were then triangulated with a qualitative research design involving 13 Central bank-regulated and 20 self-regulated MFIs. The results showed that regulations increased the client base of MFIs but reduced the percentage of poor clients served, largely women. It is recommended that the government set up a fund for poor clients to be accessed by well-performing MFIs for provision of financial services to the poor to assist in poverty reduction.

Structural Transformation, Profit and Cost: What Drive(s) Mission Drift in Indian Microfinance?

2020 ◽  
pp. 097300522096722
Author(s):  
A. P. Pati
Keyword(s):  
Capital Structure ◽  
Structural Transformation ◽  
Empirical Data ◽  
Financial Sustainability ◽  
Profit Motive ◽  
Microfinance Institutions ◽  
Recent Past ◽  
Significant Percentage ◽  
Mission Drift ◽  
Capital Assets

During the recent past, all over the globe, many privately managed microfinance institutions (MFIs) have transformed into professionally managed companies, which has brought the mission drift discussion to the forefront. Along this line, over the last decade, the Indian counterparts also have changed their positions and moved towards commercialisation of their business. Keeping transformation in the background, this article tries to capture the mission of drift magnitude and its dimensions and to identify the drivers of drift. With the help of empirical data, it is observed that there is a significant percentage of institutions falling under the drifted category. Many of those that are new and sustainable are found to have drifted from their mission. A noticeable change in their capital structure in India, with a strong tilt towards financial sustainability among the regulated and professionally managed category, is being observed. Among the capital structure variables, the influence of capital assets ratio (CAR) on mission drift is found significant. Though the profit motive is not established, the increasing pressure to remain financially viable because of a higher level of equity infusion forces MFIs to drift further from their mission.

scholarly journals FINANCIAL OUTREACH AND FINANCIAL SUSTAINABILITY OF LICENSED DEPOSIT TAKING MICROFINANCE INSTITUTIONS IN NAIROBI CITY COUNTY, KENYA

2020 ◽  
Vol 5 (2) ◽  
pp. 69
Author(s):  
Rabecca Nundu Mutua ◽  
Ambrose Jagongo ◽  
Eddie Simiyu
Keyword(s):  
At Risk ◽  
Central Bank ◽  
Credit Risk ◽  
Financial Sustainability ◽  
Unique Contribution ◽  
Microfinance Institutions ◽  
Loan Loss ◽  
Self Sufficiency ◽  
Loan Size ◽  
The Relationship

Purpose: The purpose of this study was to investigate the relationship between financial outreach and financial sustainability of deposit taking microfinance institutions in Nairobi County, Kenya. Methodology: The study employed a positivism research philosophy to determine the relationship between financial outreach and financial sustainability. A population of 13 licensed Deposit Taking Microfinance Institution was considered for this study. Census method was preferred due to small number of target population. A static Panel linear regression model with fixed effect was developed for both operating self-sufficiency and financial self-sufficiency. Secondary data was obtained from Central Bank of Kenya from audited financial statements. Inferential analysis method was employed using Stata statistics software then descriptive statistics tool such as mean and standard deviations were used. several diagnostic tests were conducted namely: normality, multicollinearity, heteroscedasticity, serial correlation, stationarity and Hausman. Results: The study found that number of active clients (breath of outreach) had statistically significant relationship; Average loan size (depth of outreach) had insignificant; age of firm (experience of institution) had insignificant relationship on financial sustainability of DTMFIs in Nairobi County, Kenya. The moderating effect between credit risk management (portfolio at risk) and breadth of outreach (number of active clients) was positive while portfolio at risk and experience of institution (age) and depth of outreach (average loan size) was negative on the relationship between financial outreach and (OSS and FSS) financial sustainability. Further, loan loss provision coverage had positive interaction with number of active clients, age, and average loan size on the relationship between financial outreach and   financial sustainability of DTMFIs in Nairobi County, Kenya. Unique contribution to theory, practice and policy: The study recommended that the government through Central Bank of Kenya should formulate policies that enhance savings with DTMFIs and therefore encourage financial inclusion.  Further, DTMFIs should engage in vigorous financial education to boost financial facilities’ awareness to boost the breadth of outreach and get involved in information collection and sharing to mitigate credit risk.

scholarly journals Pengaruh Earning Per Share, Struktur Modal, Suku Bunga, dan Inflasi Terhadap Harga Saham pada Perusahaan Consumer Goods yang Terdaftar di BEI Tahun 2017-2019

2021 ◽  
Vol 21 (2) ◽  
pp. 597
Author(s):  
Ike Rukmana Sari ◽  
Patricia Patricia ◽  
Silvia Silvia
Keyword(s):  
Regression Analysis ◽  
Capital Structure ◽  
Interest Rates ◽  
Consumer Goods ◽  
Sampling Technique ◽  
Share Price ◽  
Test Results ◽  
Share Capital ◽  
Share Prices ◽  
Research Show

The research we conducted was to determine the effect, analyze, and also get an understanding of whether Earning Per Share, Capital Structure (DER), Interest Rates, and Inflation simultaneously or partially affect Share Prices inCompanies Consumer Goods Listed on the IDX in 2017-2019. The population in this study were 50 companies and there were 60 companies that met the criteria as a sample with a purposive sampling technique. Multiple regression analysis and classical assumption test are the methods researchers use in this research. The results of the F test in this research show that simultaneously Earning Per Share, Capital Structure (DER), Interest Rates, and Inflation have an effect on share prices inCompanies Consumer Goods Listed on the IDX in 2017-2019. In the t test results, the variable Earning Per Share has an influence on the share price ofcompanies consumer goods listed on the IDX in 2017-2019, Capital Structure (DER) has an influence on the share price ofcompanies consumer goods listed on the IDX in 2017-2019, Interest Rates has no influence on the share price ofcompanies consumer goods listed on the IDX in 2017-2019, inflation has no effect on the share price ofcompanies consumer goods listed on the IDX in 2017-2019.

scholarly journals Testing Efficiency, Size, Productivity and Capital Structure of Microfinance Institutions (MFI’s) of Pakistan

2021 ◽  
Vol 9 (3) ◽  
pp. 267-274
Keyword(s):  
Capital Structure ◽  
Performance Indicators ◽  
Unit Root Test ◽  
Financial Statements ◽  
Strategic Flexibility ◽  
Microfinance Institutions ◽  
Funding Sources ◽  
Analysis Technique ◽  
The Impact

The aim of the study is to test the impact of efficiency, productivity, size and profitability of microfinance institutions on capital structure in microfinance sector. For this, micro finance NGO’s are selected to infer and specifically seven NGO’s (e.g. Kashf, Safco, Damen, CSC, Akhuwat, Opp and Assassah) were selected.The data is obtained from annual financial statements of these organization ranging 2005-2019 (t = 15 years). For analysis, regression analysis technique is applied and unit root test is applied to check data stationary. We found role of size and efficiency significant in determining capital structure and productivity insignificant. Planning and implementation mechanism on key performance indicators (KPI’s) is suggested to maximize productivity of micro finance institutions. Strategic flexibility is another important aspect to reconsider and bring into operations to enhance productivity. The results of the study will help to know that how such antecedent’s affects capital structure in micro finance sector for performance concern. It will also help to understand psyche of poor borrowers in Pakistan in borrowing. This research is original for theorists, scholars and practitioners and this concept is also important for organizations to know the alarming outcomes when capital becomes adequate and entire cycle moves adversely when funding sources are very less.

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