Financial Performance and Sustainability of Moroccan Microfinance Institutions: An Empirical Study

Abstract

This study explores the determinants of the financial performance and sustainability of Moroccan Microfinance Institutions (MFIs). Through the use of panel data concerning 10 MFIs (available on the MIX platform) with different time frames, three OLS models are run and aim to explain MFIs financial performance and sustainability using independent variables related to the size of the MFIs, the quality of their loan portfolios, the degree of outreach, and their productivity. The results obtained show that: (1) the personnel productivity contributes significantly to the MFIs’ Return on Assets and their sustainability, and (2) the loan repayment level of MFIs customers is an important determinant of their sustainability.

Financial Performance and Sustainability of Microfinance Institutions in Morocco: A Structural Equation Model

“…Results indicate that staff productivity significantly and positively impacts the profitability and sustainability of these microfinance institutions. This aligns with the contribution of Aguenaou et al (2019), as the authors found a significant impact using OLS regression of the loan per staff member on ROE, ROA, and OSS. In addition to that, El Kharti (2014) confirms the same relationship between staff productivity, ROA and ROE.…”

“…The literature highlights the importance of the use of metrics that includes ROA, ROE, and OSS to measure these institutions' performance. While the number of contributions that assess the determinants of Moroccan MFIs is limited (El Kharti, 2014;Aguenaou et al, 2019), the following paper distinguishes itself in the current literature in two ways. First, the use of the structural equation modelling that allows the use of endogenous and exogenous variables.…”

“…In the contribution of Janda and Turbat (2013), MFIs' performance is measured using a yield, proxied by returns from loans granted to customers. Finally, Assefa et al (2013) use the Lerner Index, a price cost index (Aguenaou et al, 2019).…”

“…In addition to that, the same contribution indicates that staff productivity has no impact on these financial institutions (El Kharti, 2014). In the most recent contribution of Aguenaou et al (2019), results found evidence that personnel productivity variables significantly impact MFIs' performance and sustainability. However, the portfolio at risk impacts the dependent variables only at a 10% significance level (Aguenaou et al, 2019).…”

“…This paper is an extension of the earlier work of Aguenaou et al (2019), and explores the limitations encountered in the previous tested OLS regression model. This is throughout using structural equation modelling (SEM) to build models that could further explain the determinants of financial performance and sustainability of Moroccan MFIs.…”