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Microfinance Institution Performance: Does the Macroeconomy Matter?

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  • Sefa Awaworyi Churchill
  • Jeffrey Korankye Danso
  • Elikem Nyatefe

Abstract

The performance of Microfinance Institutions (MFIs) has been compared at various levels for the purpose of replications and policy formulations. However, the potential effects of the macroeconomy on MFI performance are often not considered. We propose that understanding the possible effects of country‐level factors on MFI performance can help provide a more accurate evaluation and explain where microfinance fits in the development process. Based on data collected on 1544 MFIs, merged with country‐level macroeconomic and macro‐institutional data, we examine the effects of the macroeconomy on MFI performance. The results suggest that high economic growth is associated with better MFI performance. However, other modes of economic development, including wage employment opportunities, appear to impede MFI financial performance.

Suggested Citation

  • Sefa Awaworyi Churchill & Jeffrey Korankye Danso & Elikem Nyatefe, 2018. "Microfinance Institution Performance: Does the Macroeconomy Matter?," Economic Papers, The Economic Society of Australia, vol. 37(4), pages 429-442, December.
    • Handle: RePEc:bla:econpa:v:37:y:2018:i:4:p:429-442
    DOI: 10.1111/1759-3441.12233
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