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- Title
Capital Structure and Performance of Microfinance Institutions in Asia.
- Authors
Bibi, Rukhsana; Raza, Naveed; Javid, Attiya Yasmin
- Abstract
Microfinance institutions play a crucial role in poverty alleviation and provide financial services to low-income households. Microfinance growth rate is quite high in Asia but an undesirable development achieved due to high borrowing cost and inadequate reserves. Capital structure is being affected by lack of funds and interest rates charged by commercial institutions. For microfinance institutions, there is a need to determine a suitable mix of financing to stay sustainable. This study examines the impact of capital structure on the performance of microfinance institutions in Asia. Using a unique unbalanced panel data set of 253 microfinance institutions from 2000 to 2015, performance is measured in terms of sustainability, financial performance, social performance and efficiency. It is evident from the findings that capital structure and micro finance characteristics play a significant role in the performance. Grants to assets increase operational self-sufficiency and debt to equity increases the financial self-sufficiency of microfinance institutions. Microfinance characteristics like borrowers, loan intensity, and size of institutions upsurge sustainability. Banks and NGOs positively affect the financial and social performance of microfinance institutions. Deposit to asset ratio, debt to assets, and debt to equity impact outreach and return on the asset while grants decrease financial self-sufficiency and return on equity. At macroeconomic level, gross domestic product contributes to sustainability and management efficiency. However, inflation declines financial performance. Implications emerge from the findings are a crucial element in the performance of financial institutions. Microfinance institutions should maintain an optimal capital to ensure that their going concern is assured at all times. Therefore, managers should appropriately justify capital structure to stay sustainable. It also provides some managerial suggestions for microfinance institutions that help stakeholders to make decisions.
- Subjects
ASIA; MICROFINANCE; CAPITAL structure; INTEREST rates; FINANCIAL performance; RATE of return; FINANCIAL institutions; RETURN on assets
- Publication
IBA Business Review, 2022, Vol 17, Issue 1, p106
- ISSN
1990-6587
- Publication type
Article
- DOI
10.54784/1990-6587.1427