Economics and financial sustainability in microfinancing: do investment flows toward developing countries, rural areas, microenterprises and female borrowers foster institutionalization?
Abstract
Purpose
The long-term sustainability of microfinancing institutions (MFIs) is essential for poverty reduction. This study aims to empirically evaluate whether contemporary microfinance economics supports the institutionalization of MFIs, which are crucial for the socioeconomic development of marginalized communities.
Design/methodology/approach
This research examines the flow of funds from wealthy economic areas (high-income countries, richer urban areas and capital-rich corporations) to poorer regions (low-income countries, poorer rural areas, female borrowers and financially constrained microenterprises) as a proxy for microfinance economics. Financial sustainability and institutionalization are assessed through return on assets and operational self-sufficiency. The study also considers credit risk as a key independent variable. Using panel data analysis of 333 MFIs from the USA and India, covering 2008–2018, sourced from the Microfinance Information Exchange data set on the World Bank website, this paper analyzes these dynamics.
Findings
Results show that credit risks negatively affect the financial sustainability of MFIs in both developed and developing countries. Contrary to expectations, the development status of a nation positively moderates the impact of credit risks on financial sustainability. In developing countries, intra-nation investments do not yield additional returns for MFIs or interact with credit risks. However, the economics of microfinance support the institutionalization of MFIs in these regions.
Originality/value
This study provides valuable empirical evidence on the relationship between microfinance economics and institutionalization, addressing a critical need in the microfinancing sector.
Keywords
Acknowledgements
The author extends heartfelt gratitude to the editors, anonymous peer reviewers, and the journal and publishing teams for their invaluable contributions. A special thanks is also given to all those who provided essential support behind the scenes, aiding in the successful completion of this research.
Citation
Singh, K. (2024), "Economics and financial sustainability in microfinancing: do investment flows toward developing countries, rural areas, microenterprises and female borrowers foster institutionalization?", Studies in Economics and Finance, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/SEF-08-2024-0474
Publisher
:Emerald Publishing Limited
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