Operational Self Sufficiency of Bangladeshi Micro Finance Institutions: Do The Managerial Factors Matter?

Abstract

Microfinance is not only a financial indicator but also a social indicator. The sustainable growth of this area depends to a large extent on its financial as well as operational sufficiency. The goal of this study is to evaluate the managerial factors that influence Operational Self Sufficiency (OSS) of Micro Finance Institutions (MFIs) in Bangladesh. Managerial factors are age of MFIs, size of MFIs, portfolio at risk, operating cost ratio, loan portfolio to assets, borrowing cost ratio, financial cost ratio, breadth of outreach, savings loan ratio and portfolio yield. The study is based on a balanced panel data set of 180 observations from top 20 MFIs which are gathered from yearly published information of sample MFIs over the period of 2009–2017. Collected data have been analyzed by ordinary least squares regression method and fixed effects regression model. The empirical results reveal that operating cost ratio, savings loan ratio and portfolio yield affect the OSS of sample MFIs. Among the variables, portfolio yield has highly significant positive effect; operating cost ratio has highly significant negative effect; savings loan ratio has some significant negative effect on OSS of the selected MFIs. Thus, it can be concluded that managerial factors influence the sustainability of MFIs in terms of OSS. The value of R2 is 47.45%, signifies that the explanatory variables could clarify 47.45% of the variations in OSS. The conclusion recommends that MFIs should increase its loan portfolio by simplifying distribution of loan; increasing portfolio yield; enhancing workforce productivity & efficiency; and optimum allocation of resources to reduce operating costs and to increase yield. It also recommends that MFIs should reduce borrowing costs, which will thereby reduce the total costs. They should not compromise the capability to uphold functioning for the underprivileged. As MFIs are contributing as a cushion of the economic system, they should reconsider taking loan from banks in addition their least cost sources of fund from government.