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Credit Risk, Liquidity Risk And Feedback Effects On Microfinance Institutions: An Empirical Evidence In Ecuador

Author

Listed:
  • ADRIANA UQUILLAS

    (Escuela Politécnica Nacional, Facultad de Ciencias, Ecuador)

  • BELEN SIMBAÑA

    (Escuela Politécnica Nacional, Ecuador)

Abstract

Ten years of data from an Ecuadorian microfinance entity together with data on macroeconomic variables was analyzed. Through a Vector Autoregressive Model, we established a one-way causal relationship between credit and liquidity risks. The model includes the feedback effects through successive deterioration of credit portfolio and illiquidity spreading and the effects of macroeconomics and financial variables on these risks. Our results corroborate the importance of incorporating new contagion channels in microfinance institutions’ risk management, which helps microfinance institutions become financially sustainable, generating a relatively stable level of profitability that can improve the entrepreneur’s economic situation.

Suggested Citation

  • Adriana Uquillas & Belen Simbaã‘A, 2022. "Credit Risk, Liquidity Risk And Feedback Effects On Microfinance Institutions: An Empirical Evidence In Ecuador," Journal of Developmental Entrepreneurship (JDE), World Scientific Publishing Co. Pte. Ltd., vol. 27(04), pages 1-31, December.
    • Handle: RePEc:wsi:jdexxx:v:27:y:2022:i:04:n:s108494672250025x
    DOI: 10.1142/S108494672250025X
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