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Performance of Microfinance Institutions-A Macroeconomic and Institutional Perspective

Author

Listed:
  • Katsushi S. Imai

    (Economics, School of Social Sciences, University of Manchester (UK) and RIEB, Kobe University (Japan))

  • Raghav Gaiha

    (Faculty of Management Studies, University of Delhi, India)

  • Ganesh Thapa

    (International Fund for Agricultural Development, Italy)

  • Samuel Kobina Annim

    (Economics, School of Social Sciences, University of Manchester, UK)

  • Aditi Gupta

    (Yes Bank, Mumbai, India)

Abstract

Under the continued effects of global financial crisis where the donor's investment in microfinance sectors has become shrunk, how the macroeconomic factors or the crisis or the macro-institutional factors would affect the performance of microfinance institutions (MFIs) have become one of the key debates among the policy makers and practitioners. The present paper has investigated the effect of both institutional factors and the macro economy on the financial performance of MFIs drawing upon the Microfinance Information Exchange (MIX) data as well as cross-country data of macro economy, finance and institutions drawing upon three stage least squares (3SLS) and fixed effects vector decomposition (FEVD) to take account of the endogeneity of key explanatory variables. In contrast to Ahlin et al.'s (2010), we generally find that institutional factors affect MFIs' financial performance, in particular, profitability, operating expense, and portfolio quality. It is also found that the macro-economic and financial factors, such as GDP and share of domestic credit to GDP, have positive impacts on MFIs' financial performance, such as profitability, operating expense ratio and portfolio quality. It is thus concluded that while macroeconomic factors are important, improving macro-institutional factors, policies to raise country-level institutional qualities are required for making the activities of MFIs more sustainable under the global recession.

Suggested Citation

  • Katsushi S. Imai & Raghav Gaiha & Ganesh Thapa & Samuel Kobina Annim & Aditi Gupta, 2011. "Performance of Microfinance Institutions-A Macroeconomic and Institutional Perspective," Discussion Paper Series DP2011-22, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2011-22
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    Cited by:

    1. Zaied, Maher & Maktouf, Samir, 2019. "Social and financial performance of Islamic and conventional microfinance institutions: Comparative Study in Indonesia," MPRA Paper 98340, University Library of Munich, Germany.
    2. Md Aslam Mia & Hasanul Banna & Abu Hanifa Md Noman & Md Rabiul Alam & Md. Sohel Rana, 2022. "Factors affecting borrowers’ turnover in microfinance institutions: A panel evidence," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(1), pages 55-84, March.
    3. Shamima Nasrin & Rajah Rasiah & Angathevar Baskaran & Muhammad Mehedi Masud, 2018. "What determines the financial performance of microfinance institutions in Bangladesh? a panel data analysis," Quality & Quantity: International Journal of Methodology, Springer, vol. 52(3), pages 1409-1422, May.
    4. Eric Joel Caro, 2017. "Effects of Macroeconomic Factors in the Performance of Micro Finance Institutions in Ecuador," International Journal of Economics and Financial Issues, Econjournals, vol. 7(5), pages 547-551.
    5. Ainan Memon & Waqar Akram & Ghulam Abbas & Abbas Ali Chandio & Sultan Adeel & Iram Yasmin, 2022. "Financial Sustainability of Microfinance Institutions and Macroeconomic Factors: A Case of South Asia," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 116-142, June.
    6. Mia, Md Aslam & Ben Soltane, Bassem Ibrahim, 2016. "Productivity and its determinants in microfinance institutions (MFIs): Evidence from South Asian countries," Economic Analysis and Policy, Elsevier, vol. 51(C), pages 32-45.

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