SAJMS - South Asian Journal of Management Sciences

The Impact of capital structure on the profitability of Microfinance institutions

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 one’s 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

Share this paper