Performance of Microfinance Institutions Under Economic Growth and Fluctuations: Evidence from South Asian Countries

Abstract

This study aims to explore the different macroeconomic variables which affects the performances of Microfinance Institutions (MFIs) in South Asian Countries. To attain this objective in this study, it adopted initially the fixed effect and random effect methods to carry out the preliminary estimation on the panel data. Subsequently, fixed effect and system Generalised Method of Moment (GMM) are used to check the robustness of the results. The findings of this study suggest that GDP is one of the significant variables that effect the performance of microfinance institutions as the GDP per capita of country goes up, the performance of microfinance institutions comes down and vice versa. Since the performance of the MFIs is inversely related to the economic growth, it can be inferred that economic shocks or recession have lesser effect on the performance of the MFIs in South Asian nations. In contrast to this, the coefficient of size of the microfinance institutions is found to be positive. It implies that size of the microfinance institutions will positively affect the performance of the microfinance institutions.KeywordsMicrofinance institutionsMacroeconomic factorsGDPRecessionGMMFixed effectRandom effectSouth Asia