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Do microsavings stimulate financial performance of microfinance institutions in Sub-Saharan Africa?

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  • Sydney Chikalipah

Abstract

Purpose - The purpose of this paper is to investigate the empirical relationship between microsavings and the financial performance of microfinance institutions (MFIs) in Sub-Saharan Africa (SSA). Design/methodology/approach - The approach in this paper is decidedly empirical, and employs data obtained from Microfinance Information eXchange (MIX). The data set consists of 350 microfinance MFIs domiciled in 36 Sub-Saharan African countries for the period covering 1998–2012. Findings - The panel estimation results consistently show that there exists a negative and statistically significant relationship between microsavings and the financial performance of MFIs in SSA. This is perhaps surprising, albeit rational considering the exceedingly elevated operating expenses that ascend from mobilizing and managing microsavings,ceteris paribus, that could erode firm profitability. The paper draws policy implications from these important findings. Research limitations/implications - Even though generalized method of moment estimation technique was employed and robustness checks, the issue of endogeneity cannot be eliminated entirely. Practical implications - Microfinance industry is one of the fastest growing segments of the financial sector in SSA. The industry is increasingly becoming the core of financial inclusion in the region where two-thirds of the adult population lack access to formal financial services. Therefore, gaining an in-depth understanding of the role microsavings play in the financial performance of MFIs can contribute to the growth of the industry. Originality/value - This study is timely considering the significant growth in the number of microsavings – there are currently twice as many microsavings accounts in SSA as there are microcredits. More importantly, based on 400 MFIs, that reported data to MIX in 2016, the total microsavings stood at about US$11bn against an aggregate loan portfolio of about US$10.5bn. The remarkable growth of microsavings in SSA, from less than US$100m in 2000 to US$11bn in 2016, is the main motivation of undertaking this study.

Suggested Citation

  • Sydney Chikalipah, 2018. "Do microsavings stimulate financial performance of microfinance institutions in Sub-Saharan Africa?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 45(5), pages 1072-1087, October.
  • Handle: RePEc:eme:jespps:jes-05-2017-0131
    DOI: 10.1108/JES-05-2017-0131
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    Citations

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    Cited by:

    1. Francis Lwesya & Adam Beni Swebe Mwakalobo, 2023. "Frontiers in microfinance research for small and medium enterprises (SMEs) and microfinance institutions (MFIs): a bibliometric analysis," Future Business Journal, Springer, vol. 9(1), pages 1-18, December.
    2. Anirban Pal & Piyush Kumar Singh, 2021. "Do socially motivated self‐help groups perform better? Exploring determinants of micro‐credit groups’ performance in Eastern India," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(1), pages 119-146, March.
    3. Md Aslam Mia & Lucia Dalla Pellegrina & Cheng Zhang & Sunil Sangwan, 2022. "Efficiency Wage and Productivity in the Indian Microfinance Industry: A Panel Evidence," IIM Kozhikode Society & Management Review, , vol. 11(2), pages 235-252, July.

    More about this item

    Keywords

    Microfinance; Sub-Saharan Africa; Financial performance; Microsavings; C32; G21; O12; O16; O55;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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