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This paper aims to investigate whether revenue diversification affects the financial sustainability of microfinance institutions (MFIs).
Abstract
Purpose
This paper aims to investigate whether revenue diversification affects the financial sustainability of microfinance institutions (MFIs).
Design/methodology/approach
The study uses a worldwide panel data set of 443 MFIs in 108 countries for the period 2013–2018 and two-step system Generalized Method of Moments estimation model.
Findings
The study finds that revenue diversification has a significant and positive effect on the financial sustainability of MFIs.
Practical implications
The findings of this study actually offer important managerial and policy lessons on MFIs’ financial sustainability. Microfinance managers and policymakers should consider revenue diversification as a strategy through which MFIs can attain financial sustainability instead of overreliance on donations and government subsidies
Originality/value
Unlike previous studies that examined revenue diversification in the context of banking firms, this study contributes to literature by examining the impact of revenue diversification of the financial sustainability of MFIs.
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This paper examines the effectiveness of the three macro-prudential measures introduced by the Korean government in 2010 and 2011: (i) introduction of limit for FX forward…
Abstract
This paper examines the effectiveness of the three macro-prudential measures introduced by the Korean government in 2010 and 2011: (i) introduction of limit for FX forward positions of domestic banks and foreign bank branches, (ii) reintroduction of tax on foreign investors' earnings from Korean government bonds, and (iii) imposition of macro-prudential stability levy on non-deposit foreign currency liabilities appeared in bank balance sheets. The results show that the three measures were not successful: The limits of FX forward position did not lead to the decrease in foreign borrowings. The reintroduction of the tax did not reduce foreign investments in Korean government bonds. Lastly, the levy on non-deposit foreign currency liabilities did not lower the foreign borrowings from the banks and did not result in more financing through deposits for banks. The ineffectiveness of the capital flow management system in controling the amount of foreign capital flows implies that the system might not be effective in mitigating the pressure on exchange rate caused by excessive volatility of foreign capital flows.
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Sopani Gondwe, Tendai Gwatidzo and Nyasha Mahonye
In a bid to enhance the stability of banks, supervisory authorities in sub-Sahara Africa (SSA) have also adopted international bank regulatory standards based on the Basel core…
Abstract
Purpose
In a bid to enhance the stability of banks, supervisory authorities in sub-Sahara Africa (SSA) have also adopted international bank regulatory standards based on the Basel core principles. This paper aims to investigate the effectiveness of these regulations in mitigating Bank risk (instability) in SSA. The focus of empirical analysis is on examining the implications of four regulations (capital, activity restrictions, supervisory power and market discipline) on risk-taking behaviour of banks.
Design/methodology/approach
This paper uses two dimensions of financial stability in relation to two different sources of bank risk: solvency risk and liquidity risk. This paper uses information from the World Bank Regulatory Survey database to construct regulation indices on activity restrictions and the three regulations pertaining to the three pillars of Basel II, i.e. capital, supervisory power and market discipline. The paper then uses a two-step system generalised method of moments estimator to estimate the impact of each regulation on solvency and liquidity risk.
Findings
The overall results show that: regulations pertaining to capital (Pillar 1) and market discipline (Pillar 3) are effective in reducing solvency risk; and regulations pertaining to supervisory power (Pillar 2) and activity restrictions increase liquidity risk (i.e. reduce bank stability).
Research limitations/implications
Given some evidence from other studies which show that market power (competition) tends to condition the effect of regulations on bank stability, it would have been more informative to examine whether this is really the case in SSA, given the low levels of competition in some countries. This study is limited in this regard.
Practical implications
The key policy implications from the study findings are three-fold: bank supervisory agencies in SSA should prioritise the adoption of Pillars 1 and 3 of the Basel II framework as an effective policy response to enhance the stability of the banking system; a universal banking model is more stability enhancing; and there is a trade-off between stronger supervisory power and liquidity stability that needs to be properly managed every time regulatory agencies increase their supervisory mandate.
Originality/value
This paper provides new evidence on which Pillars of the Basel II regulatory framework are more effective in reducing bank risk in SSA. This paper also shows that the way regulations affect solvency risk is different from that of liquidity risk – an approach that allows for case specific policy interventions based on the type of bank risk under consideration. Ignoring this dual dimension of bank stability can thus lead to erroneous policy inferences.
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Lucia Gibilaro and Gianluca Mattarocci
This paper aims to examine the relevance of cross-border activity in the European banking sector, evaluating the role of differences in regulation to explain the level of interest…
Abstract
Purpose
This paper aims to examine the relevance of cross-border activity in the European banking sector, evaluating the role of differences in regulation to explain the level of interest in entering foreign markets.
Design/methodology/approach
The sample considers all banks in the European Union (EU 28) existing at year-end 2017, and information about the ultimate owners’ nationality to classify local and foreign banks is collected. The analysis provides a mapping of regulatory restrictions for foreign banks and evaluates how they impact the role of foreign players in the deposit and lending markets.
Findings
Results show that the lower are the capital adequacy requirements, the higher are the amounts of loans and deposits offered by non-European Economic Area banks and, additionally, the higher the probability of having a foreign bank operating in the country.
Originality/value
This paper provides new evidence on regulatory arbitrage opportunities in the EU and outlines differences among EU countries not previously studied.
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A controversy about whether liberalization through market opening is a necessary and sufficient condition for a stable and balanced growth in the developing countries was…
Abstract
A controversy about whether liberalization through market opening is a necessary and sufficient condition for a stable and balanced growth in the developing countries was retriggered by the 2008 global financial crisis. This paper aims to analyze 1) the impact of market openness on the economic growth and financial development, 2) the dynamic correlation between the compositional change in foreign investments and the returns of domestic financial markets, 3) the effect of foreign portfolio investment on the stock market activity (liquidity and profitability). Our empirical findings infer that the income level has a positive relationship with financial openness and the foreign portfolio investments cause price fluctuations in the domestic stock market. These results imply that the precautionary and effective policies such as prudential regulations on the short-term capital transactions are strongly needed to emerging markets in order to prevent the excessive fluctuations in the financial markets over the macroeconomic fundamentals.
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This study aims to examine the impact of anti-money laundering (AML) regulations on financial inclusion using a comprehensive measure of AML regulations developed by the Basel…
Abstract
Purpose
This study aims to examine the impact of anti-money laundering (AML) regulations on financial inclusion using a comprehensive measure of AML regulations developed by the Basel Institute on Governance. Again, this study investigates the existence of threshold effects in the AML regulations–financial inclusion nexus.
Design/methodology/approach
This study uses panel data across 212 economies (developed, developing and Africa) of the globe-spanning from 2012 to 2019. This study uses the dynamic panel threshold estimation technique proposed by Seo et al. (2019).
Findings
In general, the results indicate that AML regulations promote financial inclusion across the globe. However, AML regulations spur financial inclusion below the threshold of AML regulations, whereas, above the thresholds, AML regulations have damaging effects on financial inclusion. Further, the author finds that AML regulations have a detrimental impact on financial inclusion for developed economies. In contrast, AML regulations promote financial inclusion at all levels of AML regulations for African countries.
Practical implications
The findings of this study imply that countries must make conscious efforts in combating the incidence of money laundering by establishing sound AML regulatory regimes as a means of promoting financial inclusiveness. However, there is a need for regulators to ensure cost-effective and efficient implementation of AML regulations.
Originality/value
The value of this paper is its contribution to literature as it is a major attempt in empirically assessing the impact of AML regulations on financial inclusion. Again, to the best of the author’s knowledge, this is the first study to examine the non-linear relationship between AML regulations and financial inclusion.
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Flavio César Valerio Roncagliolo and Ricardo Norberto Villamonte Blas
The purpose of the paper is to examine the differences in the impact of financial stress in advanced and emerging economies.
Abstract
Purpose
The purpose of the paper is to examine the differences in the impact of financial stress in advanced and emerging economies.
Design/methodology/approach
The authors employ a panel vector autoregression model (PVAR) for a comparative analysis of the relationship between financial stress, economic growth and monetary stability in 14 advanced and emerging economies. A homogeneous measure of financial stress is constructed and measured as an index that provides signals of stress episodes in an economy.
Findings
The impact of financial stress shocks is greater on the economic growth of advanced economies; likewise, financial stress shocks are significant only in advanced economies. The interbank interest rate is negatively affected by financial stress in emerging economies. In general, the results show a clear view of the importance of financial stability and the economic relevance of financial stress measures in the context of macro-prudential regulation.
Originality/value
The results can be extended to monetary policy to implement measures that mitigate the impact of future financial crises.
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