Microfinance Research Articles

Does Digitization Affect Social and Financial Performance in Microfinance Institutions?

This research aims to explore the effects of the digitization of microfinance institutions (MFIs) on their social and financial performances, and on the trade-off between them given the double mission pursued by these institutions. To reach this objective, we performed ordinary least squares (OLS), logit, and two-stage least squares (2SLS) regressions on a sample of 331 microfinance institutions from the ATLAS database. Findings reveal evidence of significant mixed effects of digitization on social and financial performance indicators. They also show that there is no significant effect of digitization on trade-offs. The novel aspect of this research lies in the approach used to measure social performance which is proxied by the SPI4 -Social Performance Indicators-developed by Cerise and Social Performance Task Force (SPTF), while previous research on the topic have used social mission outcomes indicators. The SPI4 tool allows financial service providers to evaluate the implementation of Universal Standards for Social Performance Management (USSPM). This study also provides evidence on the effect that digitizing MFIs operations may have on trade-off between their social and financial performances. The findings have significant implications for institutions, especially on the way they can implement and interconnect their digitization process, USSPM and financial strategy. Firstly, the significant effect of digitization on social performance reveals synergies between the adoption and use of digital solutions and the implementation of good practices of SPM. Secondly, the mixed effects of adopting digital solutions on financial performance suggest that while this process appears to drive efficiency within institutions, it does not necessarily improve their profitability, since capital expenditure appears to increase more than profits. Finally, since digitization does not appear conducive to trade-off, MFIs should better align their financial and investment strategy with their social objectives when going digital.

Role of Microfinance Institutions in Growth of Micro and Small Enterprises in Kebridehar City, Ethiopia: A Case of Rays Microfinance Institution

This study investigated the influence of microfinance institutions (MFIs) on the development of micro and small enterprises (MSEs) in Kebridehar City Administration. The objective was to assess the role of MFIs in the growth of MSEs, specifically focusing on aspects such as loan provision, financial skills training, role modelling and savings mobilisation. The researchers collected data from 170 MSEs that utilised the services of MFIs, using both secondary and primary sources. Descriptive and inferential statistics were employed to analyse the data, revealing that loans, financial skills training, savings mobilisation and role modelling all had a significant impact on the growth of MSEs in the city. This study enhances our understanding of how these factors contribute to the development of MSEs.

Empowering Women's Business Groups through Microfinance in Village Enterprises

Background: Effective management of microfinance institutions is essential for rural economic development. Specific Background: This study examines BUMDesa Bersama “Gempol Sejahtera,” focusing on its application of microfinance principles in financial management. Knowledge Gap: There is limited research on how structured bureaucracies affect the success of microfinance programs in community organizations. Aims: The research evaluates the impact of organizational structure on microfinance initiatives and resource management. Results: Findings show that a clear bureaucratic structure enhances efficiency and role clarity, facilitating successful program implementation. Clear Standard Operating Procedures (SOPs) and task fragmentation are critical for optimal execution. Novelty: This study offers new insights into the link between organizational structure and microfinance effectiveness in community enterprises, enriching the literature on rural empowerment. Implications: The results underscore the importance of strong organizational frameworks to improve resource management and program responsiveness, thereby promoting economic empowerment, especially among women. Highlights : Organizational Efficiency: A clear bureaucratic structure enhances operational effectiveness and role clarity. Critical Procedures: Implementing Standard Operating Procedures (SOPs) is essential for program success. Economic Empowerment: Strong frameworks promote responsiveness and resource management, benefiting community initiatives. Keywords: microfinance, organizational structure, community empowerment, financial management, bureaucratic efficiency

The Pattern of Budget Slack in Sharia Microfinance Institutions: A Phenomenology Study

The Pattern of Budget Slack in Sharia Microfinance Institutions: A Phenomenology Study

The effectiveness of growth strategies used by Zimbabwean microfinance institutions to improve company performance

The effectiveness of growth strategies used by Zimbabwean microfinance institutions to improve company performance

An Exploration on Success and Failure of Cooperatives and Microfinance

Cooperatives and microfinances are regarded as a vehicle of development. The history of cooperatives and microfinance development is relatively short which dates back to the 1970s. With the assistance of cooperatives and microfinances, households can expand opportunities for income generation. Small size of loan, group savings, small-scale entrepreneurs, diversified utilization and simple and flexible terms and conditions on credit are the determining characteristics of microfinance and cooperatives. Basically this study is based on the review of past studies and research documents and has tried to collect detail information regarding the history, success and failure of microfinance and cooperatives. It covers the information of advanced countries as well as developing countries like Nepal. In course of research, the study found that cooperatives and microfinance have contributed too many households including backward people, women and marginalized groups. It has assisted to poverty eradication, inequality reduction, women empowerment, unemployment reduction which all result to economic development. These outcomes lead to the success of cooperatives and microfinance whereas public policy issues, fraud of the management team, lack of accountability, unproductive use of cooperatives and microfinance lead towards its failure. On the basis of the findings, it can be concluded that there is rapidly expanding number and size of cooperatives and microfinance institutions in many parts of the world, and in course of time these are moving towards commercial sector rather than being oriented to backward people.

Why do microfinance institutions charge higher interest rates than banks? The role of operating costs

Microfinance interest is at the center of debate on lending to the poor because microfinance institutions (MFIs) charge significantly higher interest than conventional banks to borrowers with no creditworthiness. We contribute to the debate by documenting that MFIs spend more than banks for every dollar of lending. It occurs because the high marginal operating cost of lending is inherent to the microfinance business model - MFIs spend more than banks to mitigate high credit risks in lending to the poor. This study shed light on MFIs’ systemic limitations in poverty alleviation as envisaged in the sustainable development goals (SDGs).

Firm Characteristics, Interest Rate And Financial Performance Of Microfinance Banks In Kenya

Microfinance Banks gives the forte to improve the economic activity of low-income individuals and eliminate poverty, resulting in economic progress. However, microfinance's Banks financial performance in Kenya has declined over time. The objective of this study is to investigate firm characteristics, interest rate and financial performance of microfinance banks in Kenya. The study was grounded on buffer capital, efficiency structure and interest rate parity theories. The study research methodology rested on positivism research philosophy. Research design was explanatory non-experimental design. Secondary panel data was utilized. 13 microfinance banks in Kenya were target. Information was gathered using secondary data sources from microfinance banks accounting report from 2016 to 2022. Data was analysed using descriptive and inferential statistics. The study used multiple regressions and Pearson’s Product Moment Correlation analysis. All ethical considerations were appropriately observed. Findings indicated that adequacy of capital exerts a notable and direct effect on financial performance, underscoring the importance for microfinance banks in Kenya to prioritize maintaining sufficient capital levels to support their overall stability and financial outcomes. Conversely, quality of asset demonstrates a significant and adverse influence on performance financially, highlighting the need for microfinance banks to enhance their credit assessment processes to ensure the quality of their loan portfolios. The research revealed that efficiency of management has an insignificant direct influence on financial performance of Microfinance banks. To address this, microfinance banks are advised to invest in comprehensive management training programs and capacitybuilding initiatives to improve operational effectiveness and decision-making processes. Earning ability, on the other hand, exhibits a considerable and direct influence on financial performance. Microfinance banks should thus focus on continuous innovation of their products and services to enhance their earning potential and overall financial outcomes. Liquidity levels exhibit an insignificant and inverse effect on the financial performance outcomes. To mitigate potential risks, microfinance banks should establish comprehensive policies and procedures to monitor and manage liquidity effectively. Interestingly, the study reveals that the connection concerning firm-level attributes and financial outcomes for microfinance institutions in Kenya does not appear to be subject to a substantial moderating influence from interest rate movements. Therefore, the survey recommends that microfinance banks concentrate on improving governance structures, operational efficiency, risk management practices, and asset quality. This can be achieved through capacity-building programs, training initiatives, and adopting best practices from successful microfinance institutions. Strengthening these firm characteristics will enable microfinance banks to enhance their financial performance, irrespective of interest rate fluctuations

The Impact of Digitalization on Credit Risk Management in Microfinance Institutions in Nueva Ecija, Philippines

The study examines the credit risk management practices of lending institutions in rural Nueva Ecija, Philippines, amidst their significant growth and the evolving economic landscape. Given their pivotal role in financial transactions, these institutions face inherent risks which necessitate effective management strategies. Employing a descriptive method, the research identified and evaluated credit risk management practices, focusing on credit analysis and collection policies. The study also assessed the impact of digitalization on these practices within microfinance institutions in the region. Findings indicated that while there was no significant relationship between credit risk management practices and loan collection performance, digitalization emerged as a promising avenue for enhancing efficiency and reducing risks. Metrics such as portfolio-at-risk, on-time repayment rate, and past due rate were used to evaluate loan collection performance. The study underscores the potential of digital tools and platforms in transforming credit risk management, offering opportunities to streamline operations and improve collection policies. It identifies current market challenges and outlines strategies to mitigate risks effectively, thereby enhancing the stability and efficacy of rural lending institutions in Nueva Ecija.

Empowering Communities through Akhuwat Foundation's Microfinance Initiative in Bhakkar, Punjab

Poverty is a global problem with several facets that affect millions of people worldwide. This study investigates the role of microfinance, mostly through the Akhuwat Foundation, in reducing poverty in the undeveloped district of Bhakkar, South Punjab, Pakistan. Akhuwat Foundation provides small loans to the needy to raise them out of poverty. This qualitative study takes an interpretive social science method, combining a meta-analysis of relevant literature with in-depth interviews of stakeholders using open-ended questions. According to the data, recipients primarily use these loans to start businesses, which leads to increased income and, as a result, poverty alleviation. However, limited resources limit the extent of lending, demanding increased loan-giving capacity to reach more people in need. Moreover, respondents require further training in business management or entrepreneurial capacities, which is not addressed by microfinance institutions such as Akhuwat Foundation before loan acceptance. Pre-loan training is required for optimum use of funds for business purposes, which limits microfinance's potential influence on poverty alleviation.

Do Micro Finance Banks Influence The Performance Of Small Scale Business Entrepreneurs In Ijebu North Lga, Ogun State, Nigeria?

This paper contributes to the debate on the impact of Microfinance financial and non-financial services on the development of small-scale entrepreneurs. This study actually investigated the influence of Access to Microfinance Credit and Microfinance services on the development of small-scale entrepreneurs in Ijebu North Local Government Area of Ogun State, Nigeria. Survey research design using simple random sampling technique was employed to select 90 out of 175 registered small-scale entrepreneurs in Ijebu North LGA. Applying regression analysis on the primary data collected showed that a positive and significant relationship exists between Access to Microfinance credit and performance of small-scale entrepreneurs in the sampled areas. In addition, Microfinance service was also found to exert a significant influence on small-scale entrepreneurs’ performance, albeit, the correlation coefficient and the coefficient of determination were below average. This notwithstanding, the study concludes that Microfinance provision of credit; financial services, business support, and empowerment have positively influenced business performance, income generation, asset accumulation, and overall well-being of small-scale entrepreneurs in the sample area. It is recommended that microfinance institutions should continue to focus on expanding access to credit and other financial and advisory services to small-scale entrepreneurs to continuously improve their overall performance.

How Does the Performance of Islamic Microfinance Institutions Affect the Welfare of SMEs?: Empirical study of BTM Mulia Babat

This study aims to assess the direct and indirect effectiveness of Islamic microfinance services, particularly financing products, in enhancing the welfare of small and medium-sized entrepreneurs (SMEs) in Lamongan, with Baitul Tamwil Muhammadiyah (BTM) Mulia Babat as the case study. The partial least square-structural equation modeling method is used in this quantitative study, examining data from 52 respondents, where the respondent data are BTM Mulia Babat business financing customers. The findings of this study found that Islamic microfinance services and business assistance directly have a positive impact on SMEs' increase in income. However, Islamic microfinance services and business assistance indirectly do not impact SMEs' welfare. Despite the increase in SMEs' income, it directly impacts SMEs' welfare. The novelty of this study is to identify the effectiveness of Islamic microfinance institutions in improving the welfare of SMEs. This study presents evidence of the impact of Islamic microfinance institutions on the welfare of micro and medium entrepreneurs. It can encourage more Islamic microfinance programs to offer feasible Islamic microfinance services as an alternative to boosting SMEs in the regions. This study's empirical implications and findings highlight the importance of business assistance from Islamic MIFs as business financing providers to support businesses.

Financial sector development and microcredit to small firms

This article investigates the relationship between countries’ financial sector development and the loans extended to micro, small, and medium-sized enterprises (MSMEs or small firms) by microfinance institutions (MFIs). Using 4,801 MFI-year observations worldwide, we find a negative relationship between financial sector development and MSME lending by microfinance institutions. In other words, improvement in financial development, defined as a combination of depth, access, and efficiency, decreases micro-lending to small firms due essentially to intense competition from banks. Moreover, looking at the ownership status of microfinance institutions, we find that the intense competition between profit-oriented microfinance institutions and banks mainly drives the observed negative relationship. For nonprofit microfinance institutions, financial sector development is not significantly associated with their lending to small firms. In a less developed financial sector, microfinance institutions lend more to small firms, fulfilling their social mission.

The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan

The impact of organizational culture on knowledge sharing and absorptive capacity: a study of the microfinance institutions in Pakistan

The nexus between institutional quality and the financial sustainability of microfinance institutions

The nexus between institutional quality and the financial sustainability of microfinance institutions

Impact of Board Characteristics on Firm Performance: Evidence from Ethiopian Microfinance Institutions

Impact of Board Characteristics on Firm Performance: Evidence from Ethiopian Microfinance Institutions

Assessing Beneficiaries Perceptions of Service Delivery in Microfinance Institutions

Commercial banks and recently founded MFIs are two major competitors for microfinance institutions (MFIs). The same microfinance clients are now being targeted by an increasing number of MFIs. The demand for microfinance consumers has increased, which has led to a rise in the sophistication of the services that these customers expect from MFIs. MFIs, however, are putting a lot of effort into keeping and satisfying their clients. MFIs must pay closer attention to the priorities and preferences of their customers in order to comprehend their demands and preferences in the current competitive climate. Today, obtaining customer happiness is crucial to accomplishing MFI goals. As can be seen from the foregoing, MFIs' ability to succeed depends on their ability to do business with their clients. In light of this context, the article dives to assesses beneficiaries' opinions on the services of MFIs', microfinance and other associated services.

Factors Influencing Public Interest in Using Sharia Microfinance Institution Produsts in Lamongan

Islamic Microfinance Institutions (IMI) have a strategic role with their main function being to collect funds from people with excess funds and channel the funds to people in need effectively and efficiently. The existence of IMI is expected to help people, especially those from the lower middle class, in gaining access to funding. However, the perception and attitude of the community towards bank interests and the profit sharing system show diversity. Some people still choose to accept interest and consider it the same as the profit sharing system, so an analysis of factors that influence the community's interest in using IMI products is needed. The purpose of this study was to determine the effect of knowledge, promotion, service quality, and religiosity on the community's interest in using IMI products in Lamongan. The sample used was 100 samples selected using the purposive sampling method. The data was processed using multiple linear regression analysis techniques. The test results stated that partially and simultaneously, the variables of knowledge, service quality, promotion, and religiosity had a positive effect on the community's interest in using IMI products in Lamongan.

Critical development of Islamic financial technology ecosystem: lesson learned from financial technology literature

Purpose This study aims to draw lessons from the financial technology (FinTech) ecosystem literature through a systematic literature review. Design/methodology/approach This study systematically studied a sample of 134 articles from the Scopus database to assess the pattern of research development within the scope of the FinTech ecosystem over the last 15 years (2008–2023). Findings The results obtained indicated that the current research focus leads to several aspects: digital technology and financial inclusion, FinTech and customer behavior, FinTech ecosystem, business model, as well as aspects of governance and regulation. In the effort to develop Islamic FinTech, some aspects that might be targeted include aspects of business development and the Islamic FinTech ecosystem in general, extending financial inclusion to governance and managerial implementation of Islamic FinTech itself. Research limitations/implications This research has limitations because it did not focus on the study of more specialized sectors, such as insurance or microfinance institutions, in adopting FinTech, requiring the use of other specifications of institutions in addition to Islamic banking. Practical implications This research has substantial theoretical implications in mapping the intellectual structure of Islamic FinTech research, which has been underexplored by previous researchers, as well as providing essential information about which sectors should be prioritized to encourage inclusiveness and overall performance of financial institutions. Originality/value This research explores more deeply with a comprehensive approach so that it becomes a pioneer in the study of FinTech ecosystem literature for the development of Islamic FinTech.

Assessing the effect of motivation on employee retention in Zambian Microfinance Institutions, a case of EFC Zambia Financial Services

Assessing the effect of motivation on employee retention in Zambian Microfinance Institutions, a case of EFC Zambia Financial Services