Monzurul Hoque, Muhammad Chishty and Rashid Halloway
The purpose of this paper is to examine the impact of commercialization on capital structure, mission and performance of microfinance institutions (MFIs).
Abstract
Purpose
The purpose of this paper is to examine the impact of commercialization on capital structure, mission and performance of microfinance institutions (MFIs).
Design/methodology/approach
Robust estimation techniques ranging from simple OLS to fixed and random effects, Tobit and two‐stage least‐squares regression were applied using panel data for six‐year period 2003‐2008.
Findings
The authors' results are generally robust and indicate that leverage decreases the relative level of outreach to the very poor. This is expected as increases in cost of capital leads to higher cost of borrowing, higher default rate and increased risk. Increased use of commercial debt and equity financing lowers productivity for client‐maximizing MFIs through lower conversion of savers to borrowers or the yield rate.
Research limitations/implications
Analysis was done with six years of data as some of the disclosures by MFIs were missing. As comprehensive disclosures become available, a similar study can be performed to see whether degrees of freedom affected the result. However, the research results support the expected outcome and the expectations of leading practitioners.
Practical implications
The study suggests that MFIs can adopt a non‐commercial approach to financing as an alternative to commercialization. Such models are available in practice.
Social implications
Findings suggest that mission drift experienced by MFIs due to commercialization is a wrong turn for the industry.
Originality/value
The paper describes the first study of its kind in the microfinance sector that used comprehensive estimation techniques with traditional and new performance variables.
Details
Keywords
Peter Nderitu Githaiga and Stephen Kosgei Bitok
This paper examines the influence of financial leverage on the financial sustainability of microfinance institutions (MFIs) and the moderating role of the percentage of female…
Abstract
Purpose
This paper examines the influence of financial leverage on the financial sustainability of microfinance institutions (MFIs) and the moderating role of the percentage of female borrowers (PFB).
Design/methodology/approach
The study uses a global sample of 646 MFIs drawn from the World Bank Mix Market and panel data for 2010–2018. The study employs ordinary least squares (OLS) and the one-step system generalized method of moments (SGMM) as regression estimation methods.
Findings
The findings of this study reveal that financial leverage and the PFB have a negative and significant effect on financial sustainability. The findings further show that the interaction between financial leverage and the PFB positively affects the financial sustainability of MFIs.
Practical implications
The findings inform MFIs' managers on the adverse effect of financial leverage and the PFB in their quest for financial sustainability. The findings also demonstrate that MFIs can leverage female borrowers to reverse the adverse effect of financial leverage on financial sustainability of MFIs.
Originality/value
Previous studies examined the direct effect of financial leverage and reported incongruent results. Because female borrowers are at the epicenter of MFI lending, this study fills the gap in the literature by examining whether the proportion of female borrowers moderates the relationship between financial leverage and MFIs' financial sustainability using a global dataset.