Buffer capital, loan portfolio quality and the performance of microfinance institutions: a global analysis

Afrifa, Godfred, Gyapong, Ernest and Zalata, Alaa (2019) Buffer capital, loan portfolio quality and the performance of microfinance institutions: a global analysis. Journal of Financial Stability, 44, 1-16, [100691]. (doi:10.1016/j.jfs.2019.100691).

Record type: Article

Abstract

Using a sample of 625 microfinance institutions (MFI) across 40 countries from 2010-2015, we empirically examine the effect of buffer capital on the performance of MFIs and how this effect varies with loan portfolio quality. We find a negative relationship between buffer capital and MFIs’ performance. We further document that loan portfolio quality positively moderates the buffer capital-MFI performance relationship. We demonstrate that the buffer capital-loan portfolio quality relationship does not vary for deposit-taking, profit-making, and regulated MFIs. Our findings shed new light on the value relevance of capital in microfinance institutions. We use a novel approach to evaluate our results in light of the effects of omitted variable bias.

Text

JFS-Final V3 - Accepted Manuscript

Available under License Creative Commons Attribution Non-commercial No Derivatives.

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