Abstract
Based on a dataset covering 2938 banks and 1078 microfinance institutions (MFIs) operating in 106 countries this paper compares drivers of MFI and bank solvency risk. Measuring solvency risk by the non-performing loans (NPL) ratio we find that several factors driving the bank NPL ratio play a more subdued role for MFIs. By contrast, MFI Z-scores, notably those of MFI banks, credit unions and other MFIs, are driven by largely the same factors as bank Z-scores. The difference in results can be linked to the special characteristics of credit technologies pursued by MFIs. Given that the Z-score is the broader risk measure we conclude from our results that larger and deposit taking MFIs should be subject to the same regulatory and supervisory regimes as banks.
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