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Impact of Cottage Micro Small and Medium Enterprise Financing on Bank Performance: Evidence from Emerging Economy

Author

Listed:
  • Jannatul Naiem

    (Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh)

  • Raad Mozib Lalon

    (Department of Banking and Insurance, University of Dhaka, Dhaka, Bangladesh)

Abstract

This paper aims to assess the impact of Cottage, Micro, Small and Medium Enterprises (CMSMEs) financing on bank performance estimated with NIM (net interest margin) ratio followed by ROE (return on equity) and ROA (return on assets) ratio considering ten commercial banks (both private and state-owned bank) of Bangladesh being a participant of emerging economy covering from the year 2011 to the year 2020. Adopting Pooled OLS, Fixed Effect (FE), Random Effect (RE) and Generalized Least Square (GLS) technique enables the estimation of coefficients corresponding to the explanatory variables of the models constructed with bank specific as well as macroeconomic control variables along with the CMSME financing factors affecting banks profitability. We also use diagnostic tests like the test of heteroskedasticity, multicollinearity, omitted variable, and autocorrelation to ensure our models are accurate. From this paper it will be cleared that the growth of CMSME financing can lead to higher profitability of commercial banks, higher employment rate in CMSME sector other than any other sector. According to the estimated findings of the models, almost all CMSMSE determinants along with a few control variables including bank size, GDP growth and inflation largely account for the variations in profitability ratio of banks.

Suggested Citation

  • Jannatul Naiem & Raad Mozib Lalon, 2023. "Impact of Cottage Micro Small and Medium Enterprise Financing on Bank Performance: Evidence from Emerging Economy," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 84-93, May.
    • Handle: RePEc:eco:journ1:2023-03-8
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    References listed on IDEAS

    as
    1. Nguyen An Thanh Hong & Nguyen Tuan Van, 2018. "Working Capital Management and Corporate Profitability: Empirical Evidence from Vietnam," Foundations of Management, Sciendo, vol. 10(1), pages 195-206, September.
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    More about this item

    Keywords

    CMSME financing; Profitability; Commercial banks; ROE; Inflation;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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