Impact of capital structure on performance of microfinance institutions
Microfinance institutions play a crucial role in poverty alleviation and provide financial services to low-income households. Microfinance growth rate is quite high in Asia but an undesirable development has been achieved due to high borrowing cost and inadequate reserves. Capital structure is be...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Institute of Business Administration
2022-06-01
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| Series: | Business Review |
| Subjects: | |
| Online Access: | https://ir.iba.edu.pk/businessreview/vol17/iss1/6/ |
| Summary: | Microfinance institutions play a crucial role in poverty alleviation
and provide financial services to low-income households. Microfinance growth
rate is quite high in Asia but an undesirable development has been achieved
due to high borrowing cost and inadequate reserves. Capital structure is being
affected by lack of funds and interest rates charged by commercial institutions.
For microfinance institutions, there is a need to determine a suitable mix of
financing to stay sustainable. This study examines the impact of capital structure on the performance of microfinance institutions in Asia. Using a unique
unbalanced panel data set of 253 microfinance institutions from 2000 to 2015,
performance is measured in terms of sustainability, financial performance, social
performance and efficiency. It is evident from the findings that capital structure and microfinance characteristics play a significant role in the performance.
Grants to assets increase operational self-sufficiency and debt to equity increases
the financial self-sufficiency of microfinance institutions. Microfinance characteristics like borrowers, loan intensity, and size of institutions upsurge sustainability. Banks and NGOs positively affect the financial and social performance
of microfinance institutions. Deposit to asset ratio, debt to assets, and debt to
equity impact outreach and return on the asset while grants decrease financial
self-sufficiency and return on equity. At macroeconomic level, gross domestic
product contributes to sustainability and management efficiency. However, inflation declines financial performance. Implications emerge from the findings are
a crucial element in the performance of financial institutions. Microfinance institutions should maintain an optimal capital to ensure that their going concern is assured at all times. Therefore, managers should appropriately justify capital
structure to stay sustainable. It also provides some managerial suggestions for
microfinance institutions that help stakeholders to make decisions. |
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| ISSN: | 1990-6587 2788-9599 |