The purpose of this paper is to find the factors that affect the “performance” of microfinancing institutions (MFIs) around the world and to further analyse the interaction and…
Abstract
Purpose
The purpose of this paper is to find the factors that affect the “performance” of microfinancing institutions (MFIs) around the world and to further analyse the interaction and higher order effects of these factors on the performance. Although MFIs can have various objectives from a commercial focus to a social focus when performing their operations, this study analyses the factors that contribute to “performance” of MFIs in relation to their ability to “alleviate poverty in a sustainable manner”.
Design/methodology/approach
Based on the data relating to 234 MFIs across 63 countries, this study analyses eight factors that can affect performance of MFIs (as defined in this study) and their higher order and interaction effects using multiple regression models.
Findings
The results show that gender (female), literacy level of the borrowers, operational efficiency, offering only loans (not diversifying), age and emphasis on profitability have a significant effect on the performance. Analysis of higher order effects shows that the relationship of age with performance is a downward concave curve and that with operational efficiency is an upward concave curve. The interaction effects of gender and literacy, age and emphasis on female borrowers, and also age and emphasis on profitability were found to be significant.k
Originality/value
The findings contribute to understanding the factors that affect the performance of MFIs to alleviate poverty in a sustainable manner and help the policy makers and managers of MFIs to improve their performance in this area. Considering the hundreds of millions of dollars injected into microfinancing, improvement in performance as a result of these findings can lead to savings in millions of dollars.
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Gemunu Nanayakkara and Lokman Mia
The purpose of this research is to investigate the effect of operational efficiency, gender of the borrowers and the population density on the performance of microfinancing…
Abstract
Purpose
The purpose of this research is to investigate the effect of operational efficiency, gender of the borrowers and the population density on the performance of microfinancing institutions that play a significant role in alleviating poverty in developing countries.
Design/methodology/approach
A model showing the relationships among the variables is first proposed based on the hypotheses developed in the literature review. Then the model is tested with empirical data using multiple regression and path analysis. Data used in the analysis relate to 234 microfinancing institutions across 63 countries.
Findings
The study finds that operational efficiency and gender of the borrowers have a direct impact on the performance of microfinancing institutions. Although population density does not have a direct impact on performance it has an indirect effect through operational efficiency and gender of the borrowers.
Practical implications
The findings of this study reveal to the policy makers and managers of microfinancing institutions the importance of focussing on the three factors analysed (operational efficiency, gender of the borrowers and population density) to reduce poverty.
Originality/value
The study enhances the current knowledge in the literature relating to microfinancing. The findings help to improve the performance of microfinancing institutions resulting in efficient and effective utilisation of hundreds of millions of donor funds originating from tax payers in developed countries.
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Gemunu Nanayakkara and Jenny Stewart
The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of…
Abstract
Purpose
The repayment performance of microfinancing loans funded by donors amounting to hundreds of millions of dollars is an important issue, because it indicates the effectiveness of utilising these funds to alleviate poverty. The purpose of this paper is to develop models to predict the repayment success of microfinancing loans.
Design/methodology/approach
Analysing data relating to 1,109 random loan records from Indonesia and Sri Lanka, the study develops models to predict the repayment probability of microfinancing loans using logistic regression.
Findings
There are significant differences between the two countries. In Sri Lanka, the time to approve and disburse the loan, loan cycle, gender and age of the borrower, whether a group or individual borrower, the purpose for which the loan is used and visiting frequency by the loan officers were found to be significant when predicting the repayment. Only three factors were significant in Indonesia: time to approve and disburse the loan, interest repayment frequency and gender. Both models have over 70 per cent prediction accuracy.
Originality/value
The models developed can be used in the loan appraisal stage to improve the repayment performance of microfinancing institutions saving hundreds of millions of dollars in bad debt write offs.