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

Document Type

Article

Source of Publication

Journal of Financial Stability

Publication Date

10-1-2019

Abstract

© 2019 Elsevier B.V. Using a sample of 625 microfinance institutions (MFI) across 40 countries from 2010 to 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.

ISSN

1572-3089

Publisher

Elsevier B.V.

Volume

44

First Page

100691

Disciplines

Business

Keywords

Buffer capital, Loan portfolio quality, Microfinance institutions, Performance

Scopus ID

85069994111

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Green: A manuscript of this publication is openly available in a repository

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