Microfinance Research Articles

The Effect of Attitudes Towards Money on Over-Indebtedness Among Microfinance Institutions’ Customers in Tanzania

The Effect of Attitudes Towards Money on Over-Indebtedness Among Microfinance Institutions’ Customers in Tanzania

How the method for delivering loans impacts on the economic efficiency of microfinance institutions

AbstractThe aim of this research has been to analyse how the method employed for lending can affect the cost efficiency of microfinance institutions (MFIs) since innovations for lending have been introduced in the sector in the last years and there are not empirical studies to analyse the actual impact of it. The improvement of MFIs' cost efficiency is very important for these institutions to achieve their financial self‐sufficiency and be sustainable in the long run. The data employed in this analysis have been an unbalanced panel composed of a sample of 1017 MFIs for the 2008–2018 period and collected from the microfinance information exchange (MIX) database. Our results also show that community or group‐lending methods, as village banking and solidarity groups, have a positive effect on the MFIs’ cost efficiency versus traditional methods based on individual lending. In addition, we have found that MFIs with a higher proportion of borrowers in rural areas are more cost efficient than institutions with more borrowers in urban areas, although community or group‐lending methods have a larger positive effect on MFIs’ cost efficiency in urban than in rural areas.

An Assessment of Group Lending Challenges Facing Microfinance Institutions in Mwanza, Tanzania

The purpose of this study is to thoroughly evaluate the difficulties Tanzanian microfinance institutions (MFIs) encountered when putting group lending concepts into practice. It specifically aims to pinpoint the main obstacles associated with trust concerns, group dynamics, operational complexity, and legal limitations. The study uses a mixed-methods research methodology to collect data from borrowers and MFI staff through qualitative interviews and quantitative surveys. While semi-structured interviews were held with MFIs, surveys were given to clients taking part in group lending programs. For context and historical patterns, secondary data were also gathered from previously published studies, scholarly works, and regulatory papers. According to the study, trust and group dynamics are crucial to the success of group lending initiatives. There are issues with resolving conflicts, free rider issues, uneven participation, and eroding confidence. MFIs emphasized operational problems, such as the difficulty of complying with regulations, technological constraints, and the complexity of handling repayments. Capacity building, technological advancements, regulatory authority collaboration, risk management, and a client-centered approach are among the recommendations. The study admits its shortcomings, including the fact that it only focused on two MFIs in Mwanza and that survey results may have been biased. The results, however, lay the groundwork for future studies on the changing opportunities and difficulties in group lending and give useful insights for practitioners and policymakers in Tanzania’s microfinance industry. This study fills a clear vacuum in the literature by offering a comprehensive analysis of the difficulties MFIs in Tanzania encountered when implementing group lending models. The study’s uniqueness and practical worth are enhanced by the inclusion of theoretical frameworks, a mixed-methods approach, and practical recommendations. As such, it is a great resource for those involved in the microfinance and financial inclusion scene.

What are the determinants of the financial and social performance of MFIs in Togo? Does gender borrower matter on financial performance?

Using the panel generalized method of moments, we scrutinize the key factors of financial and social performance of Microfinance institutions (MFIs) in Togo. We report that a higher increase in equity leads to MFIs' financial sustainability while an increase in debt leads to unsustainability. Furthermore, the increase in staff expenditure and operational efficiency decreases financial performance. Interestingly, in the context of Togo, the percentage of male borrowers contributes more strongly to the profitability and sustainability of MFIs than female borrowers. However, in terms of loan repayment, female borrowers contribute more to the sustainability of MFIs than male borrowers

Legitimacy spillovers and hybrid rhetoric in crowdfunded microloans

Microfinance institutions (MFIs) operate in diverse institutional contexts and serve as the backbone for microenterprises typically excluded from traditional financial markets. At the same time, MFIs and the microenterprises they support solve tangible social problems, such as alleviating hunger, lifting people out of poverty and creating more sustainable communities. When appealing for resources, MFIs work with microenterprises to create rhetoric that communicates both the financial needs and the social good that supporting them can do. Building on previous research concerning the hybrid rhetoric of microenterprises and the literature rooted in organisational legitimacy, we take a multi-level approach and assess whether country stability and MFI financial performance influence the hybrid rhetoric of microenterprises.

PENGARUH LEMBAGA KEUANGAN MIKRO TERHADAP PERTUMBUHAN SEKTOR PERTANIAN INDONESIA

The agricultural sector is a crucial sector in the Indonesian economy, this can be seen from its contribution to Gross Regional Domestic Product in 2022 of 12.40%. One of the problems faced by farmers is in terms of capital. The aim of this research is to analyze the influence of the number of MFIs and the financing provided by MFIs in Indonesia. This research uses quantitative methods with panel data regression analysis techniques for 2019-2022 in 21 provinces in Indonesia. The results of this research show that the number of microfinance institutions has no effect on the growth of the agricultural sector, this occurs because the existence of microfinance institutions is not evenly distributed in Indonesia. Then the financing provided by microfinance institutions has a negative effect on the growth of the agricultural sector, this is thought to be due to farmers' moral hazard and weak regulations that form the legal basis for MFIs.

Achieving Sustainable Development Goals Through Microfinance: An Incremental Steps Towards Growth.

In order to access a brighter and more sustainable future for all by the year 2030 the UN Members have adopted the Sustainable Development Goals (SDGs). The three most important global challenges they tackle are ensuring that everyone lives in peace and prosperity, protecting the environment, and ending poverty. The 17 Goals are critical worldwide development initiatives that balance social, economic, and environmental sustainability. They are all interconnected and interdependent. At present Microfinance Institutions (MFINs) are playing very crucial role to make banking and financial services available for remote people which is contributing directly or indirectly for achievement of SDG. Among four of SDGs, notably No Poverty, Quality Education, Gender Equality and promoting Decent work & Economic growth, and reducing inequality, are closely tied to the concepts of microfinance. Their growth is depicted through increasing Gross loan Portfolio (GLP) in recent years. The purpose of this paper is to look into how these 4 goals can be met in India through microfinance practices. For investigating the linkage between SDG and Microfinance tools like CAGR, Pearson Correlation has been used.

The influence of leadership and financial performance on business sustainability in microfinance institutions

Microfinance institutions (MFIs) play a pivotal role in empowering marginalized communities by providing them with crucial financial services. The sustainability of these institutions is essential to ensure a sustained positive impact on the lives of the underserved. To explore the factors influencing MFI sustainability, this study conducts a systematic literature review of relevant articles published between 2015 and 2023, focusing on the roles of leadership and financial performance. The findings of the study reveal a compelling positive correlation between effective leadership and financial performance with MFI sustainability. A strong and visionary leadership within MFIs is found to foster a robust organizational culture, articulate a clear vision, motivate employees, and effectively manage risks. These leadership qualities, in turn, contribute significantly to improved financial outcomes for the institution. Conversely, the study highlights the integral role of strong financial performance in ensuring MFI sustainability. A well-performing financial structure not only instills trust among customers but also facilitates business growth and secures vital profits. These financial strengths are crucial pillars that fortify the overall sustainability of MFIs, enabling them to continue their mission of empowering marginalized communities. In conclusion, this study underscores the critical interplay between leadership and financial performance in driving MFI sustainability. The recommendations derived from the findings emphasize the importance of investing in leadership development within MFIs and implementing robust financial practices.

The Interaction Effect of Stakeholder Engagement on Managerial Competencies- Financial Performance Nexus; Empirical Evidence from Microfinance Institutions in Uganda

Purpose: This study examined the moderation effect of stakeholder management on the relationship between managerial competencies and financial performance of MFIs in Uganda. Materials and Methods: The study used a cross-sectional design, adopting a quantitative approach. This design was preferred because it does not require follow-up on the respondents as would be the case with a longitudinal design. The study used a structured self-administered questionnaire to collect data from the senior managers of 76 MFIs in Uganda. MFIs were selected using stratified simple random sampling while purposive sampling was applied to select senior management. Hierarchical multiple regression analysis using SPSS was employed to test the hypothesis. Hierarchical regression was preferred to other techniques because of its capacity to indicate what happens to the model as different predictor variables are introduced. Findings: Empirical findings from this study revealed that the financial performance of MFIs in Uganda is explained by managerial competencies and the relationship is moderated by stakeholder management. The results concretize that managerial competencies and stakeholder management fuse to influence financial performance. The study revealed that managerial competencies (β= .65, p<.001) and stakeholder management (β=.61, p<.001) are significant antecedents, accounting for a substantial 58% of the variance in the financial performance of MFIs (R2=.58, p<.001). Implications to Theory, Practice and Policy: The present study has confirmed that managerial competencies are a multidimensional predictor comprising of skills, knowledge, and abilities of the management team. It emerged that stakeholder management is a potent predictor with the potential to strengthen the effect of managerial competencies on financial performance. The study addresses mixed findings in the literature on financial performance and confirms upper-echelons and the stakeholder theory.

Financial inclusion and impacts on agriculture in Delta State, Nigeria

The study appraised financial inclusion and impacts on agriculture in Delta State, Nigeria. Delta State, located in the southern region of Nigeria, is known for its rich agricultural potential. Agriculture is a major source of livelihood for the majority of its population, contributing significantly to both food security and economic growth. Nigeria introduced National Financial Inclusion Strategy (NFIS) in 2012. Besides, interventions of financial inclusion packages in Nigeria by some corporate financial inclusion organizations include: Agent Banking and Mobile Money, Nigeria Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL), Financial Literacy and Education Programs, Agricultural Credit Guarantee Scheme Fund (ACGSF) and Microfinance Institutions (MFIs). These organizations impacted the Delta State agriculture in the areas of cassava farming, oil palm production, rice cultivation, poultry, fisheries and aquaculture, agribusiness and processing and agricultural diversity. Such Impacts were obvious in food security, poverty reduction, women's empowerment, market access and value chain integration, risk mitigation, access to agricultural inputs, income diversification and increased agricultural productivity. Noticeable financial inclusion challenges in Delta State's agricultural sector were limited access to financial services, insufficient financial literacy programmes and inadequate rural infrastructure. It was concluded that financial inclusion in agriculture in Delta State is a cornerstone for the state's economic development and the well-being of its citizens. Among the recommendations given, it was emphasized that strengthening financial education system should be prioritized in agriculture.

Does multiple borrowing and COVID-19 pandemic matter in a microfinance contract?

PurposeTo improve the loan repayment performance (LRP) of microfinance banks (MFBs) in Pakistan, this study aims to look at the direct impact of multiple borrowing (MB) on LRP and client-business performance (CBP), as well as the direct impact of CBP on LRP. The moderating function of pandemic factors in the relationship between MB and CBP, as well as the mediating effect of CBP in the association between MB and LRP, was also investigated in this study.Design/methodology/approachA questionnaire was used to obtain data from 531 lower-level workers of microfinance institutions (MFIs) for the study. The respondents were chosen using stratified sampling, which divided the target population into four influential groups: lending officers in agriculture, lending officers in businesses, lending officers in gold loans and lending officers in salary loans. In this study, a two-stage structural equation modeling approach was used, including a measurement model (outer model) and a structural model (inner model). The validity and reliability of the questionnaire were investigated using the measurement model (outer model), whereas PLS-SEM bootstrapping was performed to test the hypothesis and find the relationship among different underpinning constructs by using the structural model (inner model).FindingsThe outcomes of this study demonstrate that MB has a direct impact on CBP, and that CBP has a direct impact on LRP. MB, on the contrary, had no direct and significant impact on LRP in this study. The idea that CBP mediates the relationship between MB and LRP, as well as the moderating effect of pandemic factors on the relationship between MB and CBP, is supported by this research.Originality/valueUntil now, the influence of MB on LRP via the mediating role of CBP and the moderating role of a pandemic factor in the setting of Pakistani MFBs has received little attention. During the COVID-19 pandemic, this research also aids MFBs in better understanding MB and its impact on LRP. Furthermore, based on the findings of this study, Pakistani MFIs can enhance their LRP by implementing new lending regulations, particularly with reference to MB and the COVID-19 pandemic.

Smallholder Sesame Producers’ Adaptation Decisions to Climate Change and Its Determinants in Western Ethiopia

The agricultural sector remains the main source of livelihood for rural communities in Ethiopia, but the challenge of changing climate continues to pose a serious threat to its development. This study investigated factors affecting smallholder farmers’ decisions to adopt adaptation options to climate change in West Ethiopia using data collected from 400 sampled households. The Rainfall Satisfaction Index and Multinomial Logit Model were used to analyze farmers’ exposure to climate variability and factors that shape farmers' adaptation strategies. The findings of the study showed that the majority of farmers are experiencing high exposure to climate change both in terms of variable rainfall and rising temperature. In response, to adapt to the impact of climate change farmers were participating in agronomic practices, livelihood diversification, soil and water conservation, and small-scale irrigation as the dominant adaptation options. It is also observed that adopting agronomic practices was significantly impacted by social capital, crop failure experience, and access to early warning. Gender of the household, education, and livestock ownership were found to have a negative relationship with livelihood diversification. The study further revealed that soil and water conservation measures are positively affected by perception of temperature increment, exposure to early warning systems, and larger size of cultivated land. In addition, the adoption of small-scale irrigation was significantly influenced by access to credit, social capital, and the educational status of household heads. Consequently, the result implies that programs and policies designed to curb the calamities of climate change should emphasize creating effective early warning systems to increase farmer awareness, reach farmers with effective microfinance institutions, and encourage farmers’ ties to many social cooperatives.

Governance quality and international accounting standards adoption by microfinance institutions

Cette recherche part du principe qu'une gouvernance forte conduit les dirigeants à faire des choix comptables qui améliorent la transparence et la qualité de l'information financière. Sur la base d'un échantillon d'institutions de microfinance notées sur la période 2005-2012, notre étude montre que les institutions de microfinance (IMF) ayant une meilleure qualité de gouvernance d'entreprise sont plus susceptibles d'adopter les normes internationales d'information financière. Cet effet est plus marqué pour les IMF financièrement dépendantes.

Efficiency and financial risk management practices of microfinance institutions

AbstractMicrofinance institutions (MFIs) have evolved in different and complex ways to solve various market frictions, with some of them providing a wide range of financial products and using different lending technologies to reach poor and underserved populations. As a result, some MFIs are more efficient than others, but are efficiency gains aligned with risk management practices? The specific characteristics of the microfinance industry make the answer to this question less obvious than that of commercial banks. This paper tries to shed light on these issues by analysing the efficiency and risk management of MFIs and describing the potential implications of these relationships for the microfinance industry. After considering several measures of financial risk management ratios commonly used in the microfinance literature, our results show that cost efficiency improves asset quality and solvency of MFIs, but also reduces the need for holding idle cash or liquid assets. The results of this paper can help academics, policymakers, and regulators to better understand the impact of cost efficiency on financial risks management practices in the microfinance industry.

Model Pembiayaan Agribisnis Berbasis UMKM di Kabupaten Sinjai (Studi Kasus: KUB Anggrek Desa Aska)

Financing in agribusiness, especially in businesses related to making MSME-based banana frond handicrafts, is needed in managing their business. The choice of the right financing model will depend on the needs and conditions of MSMEs. This study aims to analyze and describe the financing model at the Anggrek KUB of Aska Village, South Sinjai District, Sinjai Regency. The sampling method used is purposive sampling method. The results showed that Anggrek KUB of Aska Village currently only uses a financing model from personal capital, the P3AP2KB Office of Sinjai Regency, the UMKM Cooperative and Manpower Office of Sinjai Regency, and the Industry Trade and Energy Mineral Resources Office of Sinjai Regency. Alternative models for financing the Aska Village Orchid KUB include crowdfunding, venture capital, Microfinance Institutions (MFIs), and grants and aid programs.

The role of sharia microfinance institutions in developing MSMEs

This study aims to investigate and identify the current conditions regarding the role of Sharia microfinance institutions in developing MSME businesses. The community needs Microfinance institutions, especially low-income groups and small and micro-entrepreneurs who have yet to be reached by banking financial services, especially public banks. In providing loans to MSMEs, microfinance institutions must effectively educate and equip their clients with relevant entrepreneurial knowledge and skills. This research will use a qualitative approach with a case study method, which does not use statistical generalizations but uses logical generalizations and replication. Three Sharia microfinance institutions and sixteen MSME cases will be selected in this research. The research was conducted at Sharia Microfinance Institutions as providers of microcredit and MSMEs receiving microcredit in the Southern region of the Special Region of Yogyakarta, Gunungkidul, and Kulonprogo. This research will use three data collection methods, namely interviews, observation, and documentation, to maintain the validity and reliability of the data. Data triangulation is used to test the validity of the data. The data analysis process in this research uses two stages: descriptive analysis and case analysis. The findings of this research show hope regarding the promise of easy access to capital or funding sources as an effective tool for improving MSME business development through effectiveness, supervision, and guidance carried out by Sharia microfinance institutions. This change can be realized if the community has economic stability obtained through easy access to capital, increasing business income, and empowering the community to be ready to become entrepreneurs. It supports the development of a creative economy industry based on entrepreneurship and globally competitive ethics.

The Mediation Effect of Competitive Advantage on Managerial Competencies-Financial Performance Nexus of Microfinance Institutions in Uganda

Purpose: This study examined the mediating effect of competitive advantage in the relationship between managerial competencies and financial performance of Microfinance Institutions (MFIs) in Uganda.
 Materials and Methods: Adopting a cross-sectional design and a quantitative approach, the study covered 94 Ugandan microfinance institutions, which are members of the Association of Microfinance Institutions in Uganda (AMFIU) in all regions of Uganda. A sample size of 76 MFIs was utilized to collect questionnaire data. The mediating effect of competitive advantage was tested using Hierarchical regression while
 Findings: The study established that competitive advantage partially mediates the relationship between managerial competencies and the financial performance of MFIs in Uganda. The study also concluded that MFIs that survive competition are only those that nourish their competitive strategies and refine their strategic direction, thus improving their financial performance.
 Implications to Theory, Practice and Policy: The study recommends MFIs design policies aimed at attracting competent managers with the relevant skills, knowledge, and abilities. Besides investment in physical capital, MFIs should devise deliberate competitive strategies aimed at enhancing their ability to develop attributes that allow them to outperform their competitors.

Navigating the Microfinance Conundrum: Assessing the Impact of Commercialization on Financial Sustainability and Inclusion of the Poor in Developing Countries: A Review Literature

Aims: Following the inception of commercialization shifts in microfinance institutions (MFIs), financial inclusion of the poor has remained an open question. Moreover, the existing research results on this issue provide mixed findings. Thus, this study aims to analyze the effects of commercialization in MFIs on financial sustainability and inclusion of the poor. 
 The Study Design: The design of this study is literature review.
 Methodology: The study collected related literatures from different database such as google scholar, web of science, research gate, and general google search. More related scholarly published literatures were selected depending on clearly defined inclusion and exclusion criteria.
 Results: The finding of the study reveals a contentious discourse among scholars, with some asserting that commercialization leads to mission drift and a tradeoff between financial performance and depth of outreach, while others argue it offers opportunities for MFIs to achieve financial self-sustainability without compromising their original social goals.
 Conclusion: Empirical evidence suggests existence of tradeoff, as MFIs, driven by the need for financial viability, shift from serving the very poor to better-off customers, potentially neglecting their social mission. Policy recommendations call for a balanced approach, acknowledging the need for financial sustainability while emphasizing the importance of continued social outreach to alleviate poverty.
 Significance: The current study provides recent updates on existing debates and enriches knowledge.

ANALYSIS OF FACTORS INFLUENCING THE REALIZATION OF MURABAHAH FINANCING FOR MICRO AGRIBUSINESS ENTERPRISES IN THE TRADE SECTOR (CASE STUDY AT BMT AL-AKBAR, DELI SERDANG DISTRICT)

Micro businesses have an important role in employment absorption and gross domestic product (GDP). The problem often faced by micro businesses is the difficulty of obtaining loans from banks. Sharia Microfinance Institutions (LKMS) are an alternative source of financing. Baitul Mal wat Tanwil (BMT) Al-Akbar is a sharia microfinance institution that provides micro business financing through murabahah financing. This research aims to analyze the factors that influence the realization of murabahah financing through customer characteristics. The sampling method was carried out using convenience sampling and the number of samples used was 40 people. The collected data was processed using multiple regression. The research results show that the significant factors are length of education, length of business, net business income for one month and collateral. 
 Keywords: Agribusiness, Customer Characteristics, Realization Of Murabahah Financing, Multiple Regression, Micro Businesses

Determinants of Liquidity in Microfinance Institutions: Evidence from Developing Economies

Maintaining an optimal level of liquidity remains a crucial agenda for firms to minimise liquidity risks. Therefore, the study aims to identify the drivers of liquidity by utilizing firm-level data of 1,544 microfinance institutions (MFIs), covering a total of 112 developing countries and a period of 2010–2018. The data were then analysed using conventional econometric tools and techniques. Among others, the study found that board size, portfolio quality, donations and size of MFIs have a positive effect on the liquidity of MFIs, while gender diversity at the board level, operational self-sustainability, staff productivity, legal status and gross domestic product (GDP) growth revealed a negative effect. After conducting several robustness checks, including alternative proxies, sub-samples and endogeneity-corrected techniques, our findings remain mostly consistent. Policy implications are further discussed.