Capital Structure, Financial Performance, and Sustainability of Micro-Finance Institutions (MFIs) in Bangladesh

Abstract

Capital structure plays an important role in organizational performance. Sources of funds for micro-finance institutions (MFIs) and their performance and financial sustainability become an important topic for the MFIs and poverty alleviation initiatives to achieve sustainable development goals of the UN. We explored the following question: Does the financial structure in terms of financial leverage affect the financial performance: Financial sustainability, depth, and breadth of outreach of MFIs? Our research focuses on studying the relationship between capital structure and financial performance of micro-finance institutions as well as achieving the objectives of this program by reaching out to the deserving clients without collaterals. A dataset of 187 MFIs is used to establish the relationship between the capital structure and performance of MFIs. Panel data regression analysis has been used for this study using the Random effect and Fixed effect models. Return on Asset (ROA), and Net Income to Expenditure (NIER) have been used as measures of financial performance. The findings indicate that Equity to Asset Ratio (EAR), Debt to Loan Ratio (DTL), Risk, and Size are the factors that influence NIER. Furthermore, EAR, and DTL have a positive effect on ROA, and Risk has a negative effect. The findings of this study will enable MFIs to configure their capital structure by creating a portfolio of sources of their capital from market-based sources of funds that can maximize their financial performance and reach out to poor clients without collaterals.

The Sources of Microfinance Capital and its Effects on Farmers access to Credit in Ghana

“…The logistic model has shown that microfinance capital sources influence farmers' access to microfinance credit with marginal effects of 0.0693(6.9%) ( Table 3). This correlation is consistent with previous studies that found that microfinance capital structure has a close relationship with its financial performance (Parvin et al , 2020;Tchuigoua, 2015;Wagner and Winkler, 2013). The study found out microfinance institutions that rely on external debt are likely to fail to perform their core business to help the poor and threatening the ability to give out credit to their clients.…”

“…Sources of microfinance capital play a significant role. In most cases, different capitalization determines financial strength (Parvin et al, 2020). A weak source or overreliance on the donor is likely to affect microfinance operation and credit distribution (Bhanot and Bapat, 2015;Al-Mamun et al, 2014).…”

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“…Shepherd and DeTienne (2005) showed a positive relationship between the number of opportunities identified and financial reward, which means opportunity identification is positively related to the financial rewards (Gielnik et al, 2018). In the growing Bangladeshi economy, where newer markets and niches are emerging, a firm's financial performance depends on how well the entrepreneur can scan the market and environment and find his position in this scene (Parvin et al, 2020). Bangladeshi restaurant firms are mainly service-providing firms that provide the best possible eating-out experience compared with the context.…”

Community Empowerment and Utilization of Renewable Energy: Entrepreneurial Perspective for Community Resilience Based on Sustainable Management of Slum Settlements in Makassar City, Indonesia

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