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Income Smoothing, Capital Management and Provisioning Behaviour of Microfinance Institutions: A Study Using Global Panel Data

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  • Ashim Kumar Kar

    (University of Helsinki)

Abstract

This article investigates the effects of earnings and capital positions on loan-loss provisioning behaviour of microfinance institutions (MFIs) and whether such provisioning is pro-cyclical. The analysis is based on a global panel database of 1294 MFIs in 103 countries over the period of 1996–2013. Results of static and dynamic model estimations confirm the validity of the income-smoothing hypothesis as earnings positively and significantly affect MFIs’ provisioning behaviour. This indicates increased provisioning during times of making profits than in times of incurring loss. As expected, the study also finds that the impact of business cycle on provisioning is pro-cyclical with some regional variations. However, the study fails to confirm that MFIs’ capital management situation significantly impacts their loan-loss provisioning.

Suggested Citation

  • Ashim Kumar Kar, 2017. "Income Smoothing, Capital Management and Provisioning Behaviour of Microfinance Institutions: A Study Using Global Panel Data," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 29(1), pages 108-126, January.
    • Handle: RePEc:pal:eurjdr:v:29:y:2017:i:1:d:10.1057_ejdr.2015.81
    DOI: 10.1057/ejdr.2015.81
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    2. Ozili, Peterson K & Outa, Erick R, 2018. "Bank Earnings Smoothing During Mandatory IFRS adoption in Nigeria," MPRA Paper 89690, University Library of Munich, Germany.
    3. Osamah Ahmed AL-Maamari & P Vedava & Noufal Alrefaei, 2022. "The Importance of Microfinance Institutions in the Development of Developing Countries," Shanlax International Journal of Economics, Shanlax Journals, vol. 10(4), pages 28-35, September.
    4. Mongi Lassoued, 2021. "Success’ Conditions of Microfinance to Fostering Sustainable Development," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(1), pages 1-22, January.
    5. Doddy Ariefianto, Moch. & Trinugroho, Irwan & Yustika, Ahmad Erani, 2024. "Diversification, capital buffer, ownership and credit risk management in microfinance: An investigation on Indonesian rural banks," Research in International Business and Finance, Elsevier, vol. 69(C).
    6. Icíar García-Pérez & María Ángeles Fernández-Izquierdo & María Jesús Muñoz-Torres, 2020. "Microfinance Institutions Fostering Sustainable Development by Region," Sustainability, MDPI, vol. 12(7), pages 1-23, March.

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