Capital Structure of Microfinance Institutions

This article seeks to answer two questions. What drives the capital structure of microfinance institutions? Does the effect of variables at the microfinance institution’s level vary depending on whether the institution is shareholder based or not? Results show that a reliance on external debt has a significant correlation with tangible assets, profit distribution status, and size. Tangible assets, past due loans and size provide donors with useful information. Donations are significantly correlated with past due loans and tangible assets, indicating that donors or their mandates care about risk when they decide to give. Profitability and ratings ensure transparency but have a very limited impact on the institution’s funding policies. The results do not lead to the conclusion that for-profit microfinance institutions are more able to raise external financing than not-for-profit ones. Furthermore, except for profitability, other variables at the microfinance institution level have the same impact on both for-profit and not-for-profit MFIs. Copyright Springer Science+Business Media New York 2015