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What drives credit risk of microfinance institutions? International evidence

What drives credit risk of microfinance institutions? International evidence The purpose of this paper is to shed light on the factors that affect microfinance institutions’ (MFI) credit risk. These factors include MFIs’ characteristics and country-level indicators.Design/methodology/approachThis empirical study uses an unbalanced panel data of 638 MFIs from 87 countries observed over a period ranging from 2005 to 2015. Random-effects models are used to estimate the models.FindingsThe results reveal that group-lending methodology, percent of loan granted to women and diversification activities reduce credit risk; credit quality is enhanced by the relevance of the information published by public or private bureaus and law enforcement cost increases credit risk. Finally, credit risk tends to be limited in a good institutional environment.Practical implicationsSeveral implications can be drawn in light of these findings. For MFIs’ managers, using group lending or granting more credit to women and diversifying their activities enhance their credit quality. Furthermore, authorities need to strength debt repayment institutions and reinforce institutional environment to help MFIs to limit their credit risk.Originality/valuePrevious studies focus on specific MFIs’ practices that enhance repayment rate or on country-level indicators. One of the contributions of this paper is the use of both types of indicators. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

What drives credit risk of microfinance institutions? International evidence

Lassoued, Naima
International Journal of Managerial Finance , Volume 13 (5): 19 – Sep 22, 2017
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References (56)

Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1743-9132
DOI
10.1108/ijmf-03-2017-0042
Publisher site
See Article on Publisher Site

Abstract

The purpose of this paper is to shed light on the factors that affect microfinance institutions’ (MFI) credit risk. These factors include MFIs’ characteristics and country-level indicators.Design/methodology/approachThis empirical study uses an unbalanced panel data of 638 MFIs from 87 countries observed over a period ranging from 2005 to 2015. Random-effects models are used to estimate the models.FindingsThe results reveal that group-lending methodology, percent of loan granted to women and diversification activities reduce credit risk; credit quality is enhanced by the relevance of the information published by public or private bureaus and law enforcement cost increases credit risk. Finally, credit risk tends to be limited in a good institutional environment.Practical implicationsSeveral implications can be drawn in light of these findings. For MFIs’ managers, using group lending or granting more credit to women and diversifying their activities enhance their credit quality. Furthermore, authorities need to strength debt repayment institutions and reinforce institutional environment to help MFIs to limit their credit risk.Originality/valuePrevious studies focus on specific MFIs’ practices that enhance repayment rate or on country-level indicators. One of the contributions of this paper is the use of both types of indicators.

Journal

International Journal of Managerial Finance – Emerald Publishing

Published: Sep 22, 2017

Keywords: Risk management; Credit risk; Microfinance institutions; Debt enforcement

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