Start-up microenterprise financing and financial performance of microfinance institutions

Abstract

This article interrogates whether start-up microenterprise financing wields any benefits for the financial performance of microfinance institutions (MFIs). It is done with data from 532 MFIs drawn from 73 countries. Generally, the results show that financial support for start-up microenterprises improves the financial performance of MFIs. This result is robust under different panel estimation techniques. However, an interaction analysis reveals that the positive impact of start-up microenterprise financing on the financial performance of MFIs decreases when start-up microenterprise financing interacts with MFI size. The implication is that larger MFIs are likely to benefit less from funding start-up microenterprises.

Résumé

Cet article s’interroge sur les avantages potentiels présentés par le financement des microentreprises en phase de démarrage pour les performances financières des institutions de microfinance (IMF). Il réalise cette analyse à partir des données de 532 IMF existant dans 73 pays. D’une manière générale, les résultats montrent que le soutien financier aux microentreprises en phase de démarrage améliore les performances financières des IMF. Ce résultat est robuste selon différentes techniques d’estimation de données de panel. Cependant, une analyse d’interaction révèle que l’impact positif du financement des microentreprises en phase de démarrage sur les performances financières des IMF diminue lorsque ce financement interagit avec la taille des IMF. Il s’ensuit que plus grandes sont les IMF, moins elles sont susceptibles de bénéficier du financement des microentreprises en phase de démarrage.

Keywords:

• Start-up microenterprise
• microfinance institutions
• financial performance
• size

MOTS-CLÉS:

• Microentreprise en phase de démarrage
• institutions de microfinance
• performance financière
• taille

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 A part of outreach.

2 See www.unhcr.org

3 See www.themix.org

4 See www.worldbank.org

5 See www.datacatalog.worldbank.org/dataset/worldwide-governance-indicators

6 This is because of how this variable has been measured.

7 Firm-specific variables are: size, efficiency, credit risk, capital adequacy ratio, the breadth of outreach, the depth of outreach while country-specific variables are financial development and economic growth.

8 The aggregate of political stability and absence of violence, control of corruption, the rule of law, regulatory quality, government effectiveness, and voice and accountability is taken.

9 Note that the two-step SYS-GMM is known to address endogeneity in panel data.

10 Note that the dummy variables are not lagged.

11 Note that whether or not size has an interaction effect on the relation between micro-enterprise financing and MFI financial performance is determined by adding the coefficient of start-up microenterprise financing to the coefficient of the interaction term.

Additional information

Notes on contributors

Michael Adusei

Michael ADUSEI is a Senior Lecturer in the Department of Accounting and Finance, KNUST School of Business, Kwame Nkrumah University of Science and Technology. He has qualifications from the following institutions: University of Ghana; Kwame Nkrumah University of Science and Technology; Institute of Commercial Management (UK) and University of London (UK). His research publications have appeared in ranked journals including International Journal of Finance and Economics; International Review of Economics and Finance; Research in International Business and Finance; Quarterly Review of Economics and Finance; Journal of International Development; African Development Review and Journal of African Business. He also serves as a reviewer to some of these journals.

Ngozi Adeleye

Bosede Ngozi ADELEYE an alumnus of University of Sussex, UK holds a PhD degree in Economics from Covenant University, Nigeria. She is quantitative-inclined with strong proficiency in Stata and EViews analytical software. She is the creator and tutor of CrunchEconometrix https://cruncheconometrix.com.ng a digital platform designed to teach hands-on applied econometrics to beginners, intermediate, and advanced level users. Her YouTube Channel https://www.youtube.com/c/CrunchEconometrix which has gathered more than 1.7million views has 144 videos and over 15,000 subscribers. Her research interests revolve around issues related to Sustainable Development Goals (SDGs). She is a reviewer to several high-impact international journals.