IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2024-06-34.html
   My bibliography  Save this article

Defining Factors behind the Financial Sustainability of Microfinance Institutions (MFIs) of Bangladesh

Author

Listed:
  • Farhana Yasmin

    (Department of Finance and Banking, Faculty of Business Studies, Bangladesh University of Professionals, Bangladesh)

  • Mst. Sharmin Sultana Sumi

    (Department of Finance and Banking, Faculty of Business Studies, Bangladesh University of Professionals, Bangladesh)

  • Maliha Rabeta

    (Department of Finance and Banking, Faculty of Business Studies, Bangladesh University of Professionals, Bangladesh)

  • Ummay Mahima Ima

    (Department of Finance and Banking, Faculty of Business Studies, Bangladesh University of Professionals, Bangladesh)

Abstract

Bangladesh can be proudly recognized as the pioneer of the microcredit concept. This paper aims to discover the potential firm-specific factors that influence the economic stability of MFIs (microfinance institutions) in Bangladesh. The study has collected quantitative data on one sustainability variable and six predictor variables through performance analysis of the top 120 MFIs of Bangladesh from 2022 to 2023. MFIs having 110% or more operational sustainability have been regarded as financially sustainable and examined based on managerial inefficiency, MFIs size, leverage, breadth of outreach, loan intensity, and deposit mobilization. The findings revealed that except deposit mobilization, all other stated predictors have imposed statistically significant effects on the financial sustainability of the microfinance institutions of Bangladesh of which size and loan intensity have a positive impact whereas managerial inefficiency, leverage, and breadth of outreach have a negative impact. The results of the research can be utilized to increase knowledge about the factors that can be eliminated or controlled to achieve financial sustainability and eventually, all the MFIs being operated in society, especially those who are facing challenges in accumulating their funds will benefit from this research by getting an idea of which determinants to control.

Suggested Citation

  • Farhana Yasmin & Mst. Sharmin Sultana Sumi & Maliha Rabeta & Ummay Mahima Ima, 2024. "Defining Factors behind the Financial Sustainability of Microfinance Institutions (MFIs) of Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 14(6), pages 310-319, October.
    • Handle: RePEc:eco:journ1:2024-06-34
    as

    Download full text from publisher

    File URL: https://www.econjournals.com/index.php/ijefi/article/download/16966/8363
    Download Restriction: no
    File URL: https://www.econjournals.com/index.php/ijefi/article/view/16966
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alain De CROMBRUGGHE & Michel TENIKUE & Julie SUREDA, 2008. "Performance Analysis For A Sample Of Microfinance Institutions In India," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 79(2), pages 269-299, June.
    2. Asadul Islam, 2011. "Medium- and Long-Term Participation in Microcredit: An Evaluation Using a New Panel Dataset from Bangladesh," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 93(3), pages 843-862.
    3. Shakil Quayes, 2012. "Depth of outreach and financial sustainability of microfinance institutions," Applied Economics, Taylor & Francis Journals, vol. 44(26), pages 3421-3433, September.
    4. Dong Hyeon Jung, 2008. "Microfinance in India: SHG-Bank Linkage Program," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 11(2), pages 127-152, September.
    5. Ahlin, Christian & Jiang, Neville, 2008. "Can micro-credit bring development?," Journal of Development Economics, Elsevier, vol. 86(1), pages 1-21, April.
    6. Richard L. Meyer, 2002. "The demand for flexible microfinance products: lessons from Bangladesh," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(3), pages 351-368.
    7. Hartarska, Valentina M., 2005. "Governance and Performance of Microfinance Institutions in Central and Eastern Europe and the Newly Independent States," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24568, European Association of Agricultural Economists.
    8. M Nadiya & Francisco Olivares-Polanco & T Radha Ramanan, 2012. "Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs) - An Exploration into Indian Microfinance Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 448-462.
    9. Lenka Dokulilová & Karel Janda & Pavel Zetek, 2009. "Sustainability of Microfinance Institutions in Financial Crisis," European Financial and Accounting Journal, Prague University of Economics and Business, vol. 2009(2), pages 7-33.
    10. Kenneth Kaoma Mwenda & Gerry Nkombo Muuka, 2004. "Towards best practices for micro finance institutional engagement in African rural areas," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 31(1/2), pages 143-158, January.
    11. Wald, John K, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, Summer.
    12. Ahlin, Christian & Lin, Jocelyn & Maio, Michael, 2011. "Where does microfinance flourish? Microfinance institution performance in macroeconomic context," Journal of Development Economics, Elsevier, vol. 95(2), pages 105-120, July.
    13. Shahidur R. Khandker, 2005. "Microfinance and Poverty: Evidence Using Panel Data from Bangladesh," The World Bank Economic Review, World Bank, vol. 19(2), pages 263-286.
    14. Eugene F. Fama, 2002. "Testing Trade-Off and Pecking Order Predictions About Dividends and Debt," The Review of Financial Studies, Society for Financial Studies, vol. 15(1), pages 1-33, March.
    15. Innocent BAYAI & Sylvanus IKHIDE, 2018. "FINANCING STRUCTURE AND FINANCIAL SUSTAINABILITY OF SELECTED SADC MICROFINANCE INSTITUTIONS (MFIs)," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 89(4), pages 665-696, December.
    16. Hartarska, Valentina, 2005. "Governance and performance of microfinance institutions in Central and Eastern Europe and the Newly Independent States," World Development, Elsevier, vol. 33(10), pages 1627-1643, October.
    17. Islam, Asadul, 2015. "Heterogeneous effects of microcredit: Evidence from large-scale programs in Bangladesh," Journal of Asian Economics, Elsevier, vol. 37(C), pages 48-58.
    18. Nixon Kamukama, 2013. "Intellectual Capital: Firms' Hidden Source of Service Quality in the Microfinance Industry in Uganda," Journal of African Business, Taylor & Francis Journals, vol. 14(3), pages 150-161, December.
    19. Laurence Booth & Varouj Aivazian & Asli Demirguc‐Kunt & Vojislav Maksimovic, 2001. "Capital Structures in Developing Countries," Journal of Finance, American Finance Association, vol. 56(1), pages 87-130, February.
    20. Robert Lensink & Roy Mersland & Nhung Thi Hong Vu & Stephen Zamore, 2018. "Do microfinance institutions benefit from integrating financial and nonfinancial services?," Applied Economics, Taylor & Francis Journals, vol. 50(21), pages 2386-2401, May.
    21. Rajan, Raghuram G & Zingales, Luigi, 1995. "What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-1460, December.
    22. Iqbal, Sana & Nawaz, Ahmad & Ehsan, Sadaf, 2019. "Financial performance and corporate governance in microfinance: Evidence from Asia," Journal of Asian Economics, Elsevier, vol. 60(C), pages 1-13.
    23. John K. Wald, 1999. "How Firm Characteristics Affect Capital Structure: An International Comparison," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 161-187, June.
    24. Richard L. Meyer & Geetha Nagarajan, 2006. "Microfinance in developing countries: accomplishments, debates, and future directions," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 66(2), pages 167-193, November.
    25. M Nadiya & Francisco Olivares-Polanco & T Radha Ramanan, 2012. "Dangers in Mismanaging the Factors Affecting the Operational Self-Sustainability (OSS) of Indian Microfinance Institutions (MFIs) - An Exploration into Indian Microfinance Crisis," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(3), pages 448-462, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Janda, Karel & Zetek, Pavel, 2014. "Mikrofinanční Revoluce: Aktuální Kontroverze A Výzvy [Microfinance Revolution: Recent Controversies And Challenges]," MPRA Paper 54098, University Library of Munich, Germany.
    2. Janda, Karel & Zetek, Pavel, 2014. "Survey of Microfinance Controversies and Challenges," MPRA Paper 56657, University Library of Munich, Germany.
    3. Karel Janda & Pavel Zetek, 2015. "Mikrofinanční revoluce: kontroverze a výzvy [Microfinance Revolution: Controversies and Challenges]," Politická ekonomie, Prague University of Economics and Business, vol. 2015(1), pages 108-130.
    4. Dorfleitner, Gregor & Röhe, Michaela & Renier, Noémie, 2017. "The access of microfinance institutions to debt capital: An empirical investigation of microfinance investment vehicles," The Quarterly Review of Economics and Finance, Elsevier, vol. 65(C), pages 1-15.
    5. Islam, Asadul & Nguyen, Chau & Smyth, Russell, 2015. "Does microfinance change informal lending in village economies? Evidence from Bangladesh," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 141-156.
    6. Imran Yousaf & Arshad Hassan, 2016. "Effect of Family Control on Corporate Financing Decisions: A Case of Pakistan," PIDE-Working Papers 2016:138, Pakistan Institute of Development Economics.
    7. Muhammad Yusuf Amin & Amanat Ali & Bashir Khan, 2019. "Capital Structure of Chinese Firms Across different Sectors: Does Ownership Structure Matter?," Global Economics Review, Humanity Only, vol. 4(2), pages 70-82, June.
    8. Simon Zaby, 2019. "Science Mapping of the Global Knowledge Base on Microfinance: Influential Authors and Documents, 1989–2019," Sustainability, MDPI, vol. 11(14), pages 1-21, July.
    9. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    10. Agha Jahanzeb & Norkhairul Hafiz Bajuri & Aisha Ghori & David McMillan, 2015. "Market power versus capital structure determinants: Do they impact leverage?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1017948-101, December.
    11. Sefa Awaworyi Churchill & Jeffrey Korankye Danso & Elikem Nyatefe, 2018. "Microfinance Institution Performance: Does the Macroeconomy Matter?," Economic Papers, The Economic Society of Australia, vol. 37(4), pages 429-442, December.
    12. Isil Erol & Dogan Tirtiroglu, 2011. "Concentrated Ownership, No Dividend Payout Requirement and Capital Structure of REITs: Evidence from Turkey," The Journal of Real Estate Finance and Economics, Springer, vol. 43(1), pages 174-204, July.
    13. Nivorozhkin, Eugene, 2005. "Financing choices of firms in EU accession countries," Emerging Markets Review, Elsevier, vol. 6(2), pages 138-169, June.
    14. Joliet, Robert & Muller, Aline, 2013. "Capital structure effects of international expansion," Journal of Multinational Financial Management, Elsevier, vol. 23(5), pages 375-393.
    15. Miguel Acedo-Ramírez & Juan Ayala-Calvo & José Rodríguez-Osés, 2013. "Capital structure of small companies in the Spanish footwear sector: relevant factors," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 4(2), pages 155-173, June.
    16. Kuang Kuang Deng & Siu Kei Wong & Kwong Wing Chau, 2018. "Institutions and Capital Structure: The Case of Chinese Property Firms," The Journal of Real Estate Finance and Economics, Springer, vol. 56(3), pages 352-385, April.
    17. Huu Manh Nguyen & Thi Huong Giang Vuong & Thi Huong Nguyen & Yang-Che Wu & Wing-Keung Wong, 2020. "Sustainability of Both Pecking Order and Trade-Off Theories in Chinese Manufacturing Firms," Sustainability, MDPI, vol. 12(9), pages 1-25, May.
    18. Rashid, Mamunur & Nur Khoirunnisaa Pg Hj Johari, Dk Siti & Izadi, Selma, 2023. "National culture and capital structure of the Shariah compliant firms: Evidence from Malaysia, Saudi Arabia and Pakistan," International Review of Economics & Finance, Elsevier, vol. 86(C), pages 949-964.
    19. A.O. Olakunle & P.L. Jones, 2014. "Assessing the Impact of Size on the Capital Structure Choice for Listed Nigeria Firms," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 4(7), pages 184-202, July.
    20. Miguel Angel Acedo-Ramirez & Juan Carlos Ayala Calvo & Ernesto Navarrete-Martinez, 2017. "Determinants of Capital Structure: Family Businesses versus Non-Family Firms," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(2), pages 80-103, April.

    More about this item

    Keywords

    Financial Sustainability; Operational Sustainability; Micro Finance; Micro Finance Institutions; Micro Credit;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2024-06-34. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.