An Analysis of Profitability, Capital Structure, and Credit Risk in the Peruvian Microfinance Sector

Abstract

The Peruvian Cajas Municipales de Ahorro y Crédito (CMAC) have been integrating many people into the financial system since 1980. Their microfinance operations target both people and businesses. Hence, CMAC provides financial services to people and companies that many conventional banks might reject. Although CMAC firms have increased their operations, their profits and market share have fallen. Therefore, this study employed a PLS-SEM model to analyze the causes of this phenomenon. Following previous studies, the current analysis studied both internal and external factors. The latent variable capital structure was used to express the internal factors and indicators, while the latent variable credit risk represented the external factors. The dependent variable was profitability, and its indicators were ROA and ROE. The results of the analysis indicated that capital structure and credit risk were negatively related to profitability. Additional testing revealed that the principal causes might be attached to an increment of provisions. Moreover, CMAC managers do not accept private investors for fear of losing their power. Therefore, the recommendation is that CMAC managers improve their credit policies and share their power decisions to attract more investors.

Examining the influence of financial inclusion on investment decision: A bibliometric review

“…The influence of financial consultants on rural residents' saving behaviors is examined, with notable gains in small savings programs, financial literacy, and consultant behavior noted [ 86 ]. According to Matos Bautista et al [ 87 ], capital structure and credit risk have a negative influence, indicating the need to strengthen credit policies and share decision-making authority in order to draw in more investors and address the declining profitability and market share. Additionally, Li et al [ 88 ], empirical analysis of the detrimental effects of financial sustainability on capital leverage demonstrates how profitability suppresses this link, lending credence to the pecking order argument.…”

“… [ 101 ] Explore additional ratios that can shed light on the profitability factors of various firms within the finance sector. [ 87 ] Exploring the inclusion of cultural variables and examining the impact of digitalization would be valuable avenues for further exploration in the field. [ 102 ] Understanding the long-term and scaled-up effects of microfinance on the economy is crucial for both research and policy-making, particularly in regions with a high concentration of extreme poverty and subsistence agriculture.…”