The Impact of Capital Structure on the Profitability of Microfinance Institutions

Afsheen Abrar, Atitya Y. Javid

Research output: Contribution to journalArticleAcademicpeer-review

169 Downloads (Pure)

Abstract

The study focuses on the sources of funding and the relative profitability
derived by the microfinance organizations. The study considers three
variables, which relate to the profitability (a dependent factor): return-onassets
(ROA), operational-self-sufficiency (OSS), and return-on-equity (ROE).
The independent factor (financial sources), on the other hand, employs:
deposit-to-asset, net-deposits, and lastly debt-to-equity ratio. Moreover, the
control variables specified in this study are that of women borrowers, size
regulations, and age. The study utilizes cross-sectional (unbalanced) panel
data (2004-10) from about seventy countries around the world, covering up to
six regions globally. To bring forth estimations for the models used, the
random-effect-model has been employed. The results indicated that deposits
enhance the levels of debt in ones’ capital-structuring, thereby complementing
the firm’s overall profitability. Whereas, increased amounts of operating costs
and relative risks juts down the profitability. As with the variables of control,
the t-test leads us to the conclusion that micro-financiers with more women
borrowers enjoy a significantly higher profitability, perhaps due to less
default-risk brought about by the regular loan repayments.
Original languageEnglish
Pages (from-to)21-37
JournalSouth Asian Journal of Management Sciences
Volume10
Issue number1
Publication statusPublished - 2016
Externally publishedYes

Fingerprint

Capital structure
Microfinance institutions
Profitability
Debt
Factors
Deposits
Funding
Cross-sectional studies
Microfinance
Equity
T-test
Return on equity
Panel data
Loans
Self-sufficiency
Firm profitability
Relative risk
Assets

Keywords

  • Return on equity
  • Return on assets
  • Operational self sufficiency (OSS)
  • Portfolio at risk
  • Micro-finance institutions

Cite this

@article{304d509a9cdb402dabae6b197b7f346c,
title = "The Impact of Capital Structure on the Profitability of Microfinance Institutions",
abstract = "The study focuses on the sources of funding and the relative profitabilityderived by the microfinance organizations. The study considers threevariables, which relate to the profitability (a dependent factor): return-onassets(ROA), operational-self-sufficiency (OSS), and return-on-equity (ROE).The independent factor (financial sources), on the other hand, employs:deposit-to-asset, net-deposits, and lastly debt-to-equity ratio. Moreover, thecontrol variables specified in this study are that of women borrowers, sizeregulations, and age. The study utilizes cross-sectional (unbalanced) paneldata (2004-10) from about seventy countries around the world, covering up tosix regions globally. To bring forth estimations for the models used, therandom-effect-model has been employed. The results indicated that depositsenhance the levels of debt in ones’ capital-structuring, thereby complementingthe firm’s overall profitability. Whereas, increased amounts of operating costsand relative risks juts down the profitability. As with the variables of control,the t-test leads us to the conclusion that micro-financiers with more womenborrowers enjoy a significantly higher profitability, perhaps due to lessdefault-risk brought about by the regular loan repayments.",
keywords = "Return on equity, Return on assets, Operational self sufficiency (OSS), Portfolio at risk, Micro-finance institutions",
author = "Afsheen Abrar and Javid, {Atitya Y.}",
year = "2016",
language = "English",
volume = "10",
pages = "21--37",
journal = "South Asian Journal of Management Sciences",
issn = "2074-2967",
publisher = "IQRA University",
number = "1",

}

The Impact of Capital Structure on the Profitability of Microfinance Institutions. / Abrar, Afsheen ; Javid, Atitya Y.

In: South Asian Journal of Management Sciences , Vol. 10, No. 1, 2016, p. 21-37.

Research output: Contribution to journalArticleAcademicpeer-review

TY - JOUR

T1 - The Impact of Capital Structure on the Profitability of Microfinance Institutions

AU - Abrar, Afsheen

AU - Javid, Atitya Y.

PY - 2016

Y1 - 2016

N2 - The study focuses on the sources of funding and the relative profitabilityderived by the microfinance organizations. The study considers threevariables, which relate to the profitability (a dependent factor): return-onassets(ROA), operational-self-sufficiency (OSS), and return-on-equity (ROE).The independent factor (financial sources), on the other hand, employs:deposit-to-asset, net-deposits, and lastly debt-to-equity ratio. Moreover, thecontrol variables specified in this study are that of women borrowers, sizeregulations, and age. The study utilizes cross-sectional (unbalanced) paneldata (2004-10) from about seventy countries around the world, covering up tosix regions globally. To bring forth estimations for the models used, therandom-effect-model has been employed. The results indicated that depositsenhance the levels of debt in ones’ capital-structuring, thereby complementingthe firm’s overall profitability. Whereas, increased amounts of operating costsand relative risks juts down the profitability. As with the variables of control,the t-test leads us to the conclusion that micro-financiers with more womenborrowers enjoy a significantly higher profitability, perhaps due to lessdefault-risk brought about by the regular loan repayments.

AB - The study focuses on the sources of funding and the relative profitabilityderived by the microfinance organizations. The study considers threevariables, which relate to the profitability (a dependent factor): return-onassets(ROA), operational-self-sufficiency (OSS), and return-on-equity (ROE).The independent factor (financial sources), on the other hand, employs:deposit-to-asset, net-deposits, and lastly debt-to-equity ratio. Moreover, thecontrol variables specified in this study are that of women borrowers, sizeregulations, and age. The study utilizes cross-sectional (unbalanced) paneldata (2004-10) from about seventy countries around the world, covering up tosix regions globally. To bring forth estimations for the models used, therandom-effect-model has been employed. The results indicated that depositsenhance the levels of debt in ones’ capital-structuring, thereby complementingthe firm’s overall profitability. Whereas, increased amounts of operating costsand relative risks juts down the profitability. As with the variables of control,the t-test leads us to the conclusion that micro-financiers with more womenborrowers enjoy a significantly higher profitability, perhaps due to lessdefault-risk brought about by the regular loan repayments.

KW - Return on equity

KW - Return on assets

KW - Operational self sufficiency (OSS)

KW - Portfolio at risk

KW - Micro-finance institutions

M3 - Article

VL - 10

SP - 21

EP - 37

JO - South Asian Journal of Management Sciences

JF - South Asian Journal of Management Sciences

SN - 2074-2967

IS - 1

ER -