The Influence of Institutional Characteristics on Financial Performance of Microfinance Institutions in the OIC Countries

Bibliographic Data

ID2434434
AuthorsYusnidah Ibrahim (School of Business and Management), Iftekhar Ahmed (0000-0002-2787-7123, School of Business and Management), Minai Mohd (School of Business and Management)
Year2018
Volume11
Issue2
Pages19-35
Publication date2018-06-01
Open AccessYes
TypeARTICLE
VenueEconomics & Sociology (JOURNAL)
Journal identifiersISSN: 2071-789X • E-ISSN: 2306-3459
PublisherCentre of Sociological Research, Szczecin, Poland (PUBLISHER • PL)
DOI10.14254/2071-789x.2018/11-2/2
OpenAlexW2897794355
LanguageEN
Citations received2
References cited11

Microfinance institutions (MFIs) proved to be a powerful tool for financial inclusion through developing entrepreneurial activities in rural areas. MFIs provide small-scale loans to the poor who have no access to traditional banking and financial system. However, in the pursuit to meet their social obligation, MFIs need to be financially sustainable and this sustainability largely depends on the institution's characteristics. This study investigates the influence of MFIs' characteristics on their financial performance, using the panel dataset of 57 microfinance institutions from the member countries of the Organisation of Islamic Cooperation (OIC). The empirical results show that, as expected, the interest rate charged and the period of existence in the market have a significant positive relationship with the financial performance of MFIs. The results also indicate that credit union and cooperatives, non-bank financial institutions and non-governmental organisations outperformed their counterparts financially. Therefore, the study concludes that charging a high rate of interest may improve institutions' financial self-sufficiency; however, it is unable to secure MFIs' profit maximization strategy. Conversely, not-for-profit MFIs can ensure their financial viability while serving the poorest clients which is the prime goal of any microfinance program. Hence, MFIs can earn profits, but within limits, complying with their social promise at the same time.

Business · Economic growth · Economics · Financial inclusion · Financial institution · Financial services · Financial system · Microfinance · Obligation · Panel data · Profit (economics) · Profit maximization · Finance · FinTech, Crowdfunding, Digital Finance · Islamic Finance and Banking Studies · Microfinance and Financial Inclusion

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