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Geographic diversification and credit risk in microfinance

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  • Zamore, Stephen
  • Beisland, Leif Atle
  • Mersland, Roy

Abstract

This paper examines the relation between geographic diversification and credit risk in microfinance. The empirical findings from the banking industry are mixed and inconclusive. This study extends the discussion into a new international setting: the global microfinance industry with lenders having both social and financial objectives. Using a large global sample of microfinance institutions (MFIs), we find that geographic diversification comes with more credit risks. However, this finding is more pronounced among non-shareholder MFIs like NGOs and cooperatives, compared to shareholder-owned MFIs. Moreover, the results show that MFIs can mitigate the effect of geographic diversification on risk with group lending methodology.

Suggested Citation

  • Zamore, Stephen & Beisland, Leif Atle & Mersland, Roy, 2019. "Geographic diversification and credit risk in microfinance," Journal of Banking & Finance, Elsevier, vol. 109(C).
  • Handle: RePEc:eee:jbfina:v:109:y:2019:i:c:s0378426619302407
    DOI: 10.1016/j.jbankfin.2019.105665
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    More about this item

    Keywords

    Microfinance; Geographic diversification; Credit risk; Portfolio at risk; Loan-loss provisions; Nonperforming loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L31 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Nonprofit Institutions; NGOs; Social Entrepreneurship
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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