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Buffer capital in microfinance institutions

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  • Tchakoute Tchuigoua, Hubert

Abstract

The objective of the study is to examine the drivers of the buffer capital held by microfinance institutions, with particular emphasis on competition and its asset side effects, specifically loan portfolio quality and lending approaches. We also investigate whether competition and its asset side effects depend on whether the microfinance institution collects deposits or not or whether the institution is better capitalized or not. Except for deposit-taking MFI subsample, findings provide supportive evidence for the competition's pricing and monitoring incentive effects. Loan portfolio quality and MFI size are negatively related to buffer capital. Moral hazard in microcredit markets is likely to affect equity levels held by microfinance institutions. At the lower quantile (undercapitalized MFIs), market concentration is associated with larger buffer capital. Findings are robust to alternative measures of buffer capital and competition.

Suggested Citation

  • Tchakoute Tchuigoua, Hubert, 2016. "Buffer capital in microfinance institutions," Journal of Business Research, Elsevier, vol. 69(9), pages 3523-3537.
  • Handle: RePEc:eee:jbrese:v:69:y:2016:i:9:p:3523-3537
    DOI: 10.1016/j.jbusres.2016.01.034
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    More about this item

    Keywords

    Information asymmetries; Competition; Risks; Buffer capital; Microfinance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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