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Drivers of solvency risk – Are microfinance institutions different?

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  • Schulte, Markus
  • Winkler, Adalbert

Abstract

Based on a dataset covering 2938 banks and 1078 microfinance institutions (MFIs) operating in 106 countries this paper compares drivers of MFI and bank solvency risk. Measuring solvency risk by the non-performing loans (NPL) ratio we find that several factors driving the bank NPL ratio play a more subdued role for MFIs. By contrast, MFI Z-scores, notably those of MFI banks, credit unions and other MFIs, are driven by largely the same factors as bank Z-scores. The difference in results can be linked to the special characteristics of credit technologies pursued by MFIs. Given that the Z-score is the broader risk measure we conclude from our results that larger and deposit taking MFIs should be subject to the same regulatory and supervisory regimes as banks.

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  • Schulte, Markus & Winkler, Adalbert, 2019. "Drivers of solvency risk – Are microfinance institutions different?," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 403-426.
    • Handle: RePEc:eee:jbfina:v:106:y:2019:i:c:p:403-426
    DOI: 10.1016/j.jbankfin.2019.07.009
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    More about this item

    Keywords

    Microfinance; Bank risk; Financial stability;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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