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Resilience of Microfinance Institutions to National Macroeconomic Events: An Econometric Analysis of MFI asset quality

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  • Gonzalez, Adrian

Abstract

After controlling for MFI and country characteristics, we find no evidence suggesting a strong (in magnitude) and statistically significant relationship between changes in GNI per capita (GROWTH) and four indicators of MFI portfolio risk: quality at Risk over 30 Days (PAR-30), Portfolio at Risk over 90 Days (PAR-90), Loan loss Rate (LLR), and Write-off Ratio (WOR). We test the robustness of the models with different specifications that confirm the general result and test for different impact from growth rates according to average loan sizes disbursed by MFIs. These tests suggest that microfinance portfolios have high resilience to economic shocks. Specifically, we found only a significant relationship between growth and PAR-30. We also control for other explanatory variables like size, age, average loan size, and productivity.

Suggested Citation

  • Gonzalez, Adrian, 2007. "Resilience of Microfinance Institutions to National Macroeconomic Events: An Econometric Analysis of MFI asset quality," MPRA Paper 4317, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:4317
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    File URL: https://mpra.ub.uni-muenchen.de/4317/1/MPRA_paper_4317.pdf
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    References listed on IDEAS

    as
    1. Xavier Gine & Dean Karlan, 2006. "Group versus Individual Liability: A Field Experiment in the Philippines," Working Papers 940, Economic Growth Center, Yale University.
    2. Beatriz Armendariz & Jonathan Morduch, 2007. "The Economics of Microfinance," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262512017, January.
    3. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sandra, Kendo & Chicot, Eboue, 2016. "Microfinance institutional growth: How driven forces impact their financial integration?," MPRA Paper 70225, University Library of Munich, Germany.
    2. Brière, Marie & Szafarz, Ariane, 2015. "Does Commercial Microfinance Belong to the Financial Sector? Lessons from the Stock Market," World Development, Elsevier, vol. 67(C), pages 110-125.
    3. Ashim Kumar Kar, 2017. "Income Smoothing, Capital Management and Provisioning Behaviour of Microfinance Institutions: A Study Using Global Panel Data," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 108-126, January.
    4. Gabriel Di Bella, 2011. "The Impact of the Global Financial Crisison Microfinance and Policy Implications," IMF Working Papers 11/175, International Monetary Fund.
    5. repec:dau:papers:123456789/14039 is not listed on IDEAS
    6. repec:dau:papers:123456789/7858 is not listed on IDEAS
    7. Karel Janda & Barbora Svarovska, 2012. "Suitability of Microfinance as an Investment Option," CERGE-EI Working Papers wp470, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Awaworyi Churchill, Sefa & Korankye Danso, Jeffrey & Nyatefe, Elikem, 2015. "Microfinance Institution Performance: Does the Macro-economy matter?," EconStor Preprints 123724, ZBW - German National Library of Economics.
    9. Marie Briere & Ariane Szafarz, 2011. "Investment in Microfinance Equity: Risk, Return, and Diversification Benefits," Working Papers CEB 11-050, ULB -- Universite Libre de Bruxelles.
    10. Attiya Yasmin Javid & Afsheen Abrar, 2015. "Microfinance Institutions and Poverty Reduction: A Cross Regional Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(4), pages 371-387.
    11. 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.
    12. Katsushi S. Imai & Raghav Gaiha & Ganesh Thapa & Samuel Kobina Annim & Aditi Gupta, 2012. "Financial Performance of Microfinance Institutions-A Macroeconomic and Institutional Perspective," Discussion Paper Series DP2012-04, Research Institute for Economics & Business Administration, Kobe University.
    13. Nicolas Krauss & Ingo Walter, 2009. "Can Microfinance Reduce Portfolio Volatility?," Economic Development and Cultural Change, University of Chicago Press, vol. 58(1), pages 85-110, October.
    14. Yves Jégourel, 2008. "Les fonds d’investissement en microfinance : nouvelle niche de la finance éthique ?," Revue d'Économie Financière, Programme National Persée, vol. 93(3), pages 89-102.
    15. Joshua K. Ault & Andrew Spicer, 2014. "The institutional context of poverty: State fragility as a predictor of cross-national variation in commercial microfinance lending," Strategic Management Journal, Wiley Blackwell, vol. 35(12), pages 1818-1838, December.
    16. Barry, Thierno Amadou & Tacneng, Ruth, 2014. "The Impact of Governance and Institutional Quality on MFI Outreach and Financial Performance in Sub-Saharan Africa," World Development, Elsevier, vol. 58(C), pages 1-20.
    17. Galema, Rients & Lensink, Robert & Spierdijk, Laura, 2011. "International diversification and Microfinance," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 507-515, April.
    18. Inoue, Takeshi & Hamori, Shigeyuki, 2011. "Financial permeation as a role of microfinance : has microfinance actually been helpful to the poor?," IDE Discussion Papers 299, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    19. Takeshi Inoue & Shigeyuki Hamori, 2013. "Financial permeation as a role of microfinance: has microfinance actually been a viable financial intermediary for helping the poor?," Applied Financial Economics, Taylor & Francis Journals, vol. 23(20), pages 1567-1578, October.

    More about this item

    Keywords

    Microfinace; Assets Quality; Systemic Shocks; Repayment; Resilience;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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