The Influence of Institutional Characteristics on Financial Performance of Microfinance Institutions in the OIC Countries

Abstract

Microfinance institutions (MFIs) proved to be a powerful tool for financial inclusion through developing entrepreneurial activities in rural areas. MFIs provide small-scale loans to the poor who have no access to traditional banking and financial system. However, in the pursuit to meet their social obligation, MFIs need to be financially sustainable and this sustainability largely depends on the institution's characteristics. This study investigates the influence of MFIs' characteristics on their financial performance, using the panel dataset of 57 microfinance institutions from the member countries of the Organisation of Islamic Cooperation (OIC). The empirical results show that, as expected, the interest rate charged and the period of existence in the market have a significant positive relationship with the financial performance of MFIs. The results also indicate that credit union and cooperatives, non-bank financial institutions and non-governmental organisations outperformed their counterparts financially. Therefore, the study concludes that charging a high rate of interest may improve institutions' financial self-sufficiency; however, it is unable to secure MFIs' profit maximization strategy. Conversely, not-for-profit MFIs can ensure their financial viability while serving the poorest clients which is the prime goal of any microfinance program. Hence, MFIs can earn profits, but within limits, complying with their social promise at the same time.

Natural Resource Rent and Finance: The Moderation Role of Institutions

“…These empirical findings regarding the role of the NRR in FD are consistent with the existing body of literature on the subject compiled in different contextual settings [24,75]. A sound institutional environment significantly explains the FD [120]; high-quality institutions exert pressure on policymakers to devise a policy framework that reduces uncertainty and thereby enhances the FD [121][122][123]. The significant positive coefficient of IQ in both the short-and long run confirms the vital role of IQ in stimulating FD in Pakistan and supplements the existing theoretical and empirical view regarding this phenomenon.…”

Linkages between social and financial performance: Evidence from Sub-Saharan Africa microfinance institutions

“…The study performed the Pearson correlation matrix to reaffirm the non-existence of multicollinearity among our variables (see, Table 5 ) below. According to Kennedy (2008), as cited in Ibrahim et al [ 61 ], the correlation among variables should not exceed 0.8, and those two variables with a correlation coefficient of above 0.8 cannot be used together in the same regression. In Table 5 , we present the result of the Pearson correlation Matrix, which shows that no correlation value surpassed 0.8.…”

İslami Mikrofinans: Bir Literatür İncelemesi

“…Bu çalışmalarda İ� MFK'ların performansı kimi zaman finansal açıdan kimi zaman da sosyal açıdan değerlendirilmektedir (Purwanto et al, 2020;Siti-Nabiha & Norfarah, 2020;Siti-Nabiha & Siti-Nazariah, 2022). İ� MFK'ların performansını, konvansiyonel MFK'larla karşılaştıran pek çok çalışma bulunmaktadır (Ashraf et al, 2014;Widiarto & Emrouznejad, 2015;İbrahim et al, 2018;Suzuki et al, 2018;Al-Awlaqi & Aamer, 2019;Berguiga et al, 2020;Wasiaturrahma et al, 2020;Fersi & Bougelbene, 2021;)…”