Commercialization and changes in capital structure in microfinance institutions

Abstract

If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractPurpose -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.

FINANCING STRUCTURE AND FINANCIAL SUSTAINABILITY OF SELECTED SADC MICROFINANCE INSTITUTIONS (MFIs)

“…Recent studies (Hoque et al. , Kapper , Sekabira , Bogan ) linked MFI capital structure to the life cycle theory (LCT). The LCT notes the age‐related transformation from subsidized capital to commercial funding (especially for NGOs).…”

“…Deposit attraction plus debt usage has been increasing, with a notable move away from grants and soft loans evidencing the evolution of MFI financing in pursuit of financial sustainability (Hoque et al. ).…”

Determinants of Capital Structure Decisions among Ethiopian Micro Finance Institutions: Panel Data Evidence

“…The nongovernmental organizations (NGOs) that once dominated that industry are transforming into licensed banks and non-bank financial intermediaries [2]. The donor agencies and soft loan providers want the MFIs to become independent of their help as they mature.…”

On The Two-Way Relationship between Corporate Reputation and Financial Performance in Microfinance: A Stakeholder Approach

“…Among reasons why microfinance does not do well by doing better, rightly or wrongly its commercialization has been accused (Hoque et al, 2011, Kent & Dacin, 2013and Hossain, 2013. This is despite the fact that the international awareness, expressed in the 2008 Poncatico Declaration, followed by client protection principles in 2009 and 2011 and the G20's High-level 8 principles for digital financial inclusion in July 2016, has highlighted its care to preventing over-indebtedness and promoting transparency in customer service (Poncatico Conference Center, 2008;Ledgerwood, Earne, & Nelson, 2013 and Global Partnership for Financial Inclusion[GPFI], 2016).…”

“…Indeed, the industry is exposed to a high risk of mission drift (Cull, Demirgüç-Kunt, &Morduch, 2009 andHoque, Muhammad, &Rashid, 2011), to adverse effects of competition on both outreach and sustainability of MFIs (Assefa, Hermes, & Meesters, 2013) and saturation issues in particular markets of countries such as Kenya, Nicaragua, Peru, Ecuador, etc. (Navajas, Conning, & Gonzalez-Vega, 2003, Bédécarrats, Bastiaensen, & Doligez, 2012, and Odhiambo, 2014.…”