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Financial Sustainability of Microfinance Institutions and Macroeconomic Factors: A Case of South Asia

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  • Ainan Memon
  • Waqar Akram
  • Ghulam Abbas
  • Abbas Ali Chandio
  • Sultan Adeel
  • Iram Yasmin

Abstract

This study explores the financial sustainability of microfinance institutions (MFIs) in the economic context to identify how macro-level economic decisions affect the micro-level decisions in the microfinance sector in South Asia. For that purpose, the data of 409 South Asian MFIs combined with the macroeconomic variables of respective countries are used over the period 1999–2017. The empirical analysis uses a fixed-effect model (FEM) to analyse the unbalance panel data of microfinance institutions and macroeconomic variables. We employ two-stage least squares (2SLS) model for robustness and System Generalized Method of Moment (GMM) to address the potential endogeneity and over-identification bias. The results reveal that economic indicators such as foreign investment, human development, inflation, interest rate, private credit, and labour force participation have negatively influenced financial sustainability except for the GDP growth. The overall economic results seem imperative from the good-governance perspective of MFIs. Besides, the government and microfinance policymakers need to give due consideration to the macro-level economic decisions to achieve the financial sustainability of MFIs. JEL Classification: A12, G21, G28, O1, Q01

Suggested Citation

  • Ainan Memon & Waqar Akram & Ghulam Abbas & Abbas Ali Chandio & Sultan Adeel & Iram Yasmin, 2022. "Financial Sustainability of Microfinance Institutions and Macroeconomic Factors: A Case of South Asia," South Asian Journal of Macroeconomics and Public Finance, , vol. 11(1), pages 116-142, June.
    • Handle: RePEc:sae:smppub:v:11:y:2022:i:1:p:116-142
    DOI: 10.1177/22779787211007970
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    Cited by:

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    More about this item

    Keywords

    Financial sustainability; microfinance institutions; macroeconomic factors; South Asia;
    All these keywords.

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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