Capital structure and outreach nexus of microfinance institutions in the OIC member countries

• Main Authors: Ibrahim, Yusnidah, Ahmed, Iftekhar
• Format: Conference or Workshop Item
• Language: English
• Published: 2017
• Subjects: HG Finance
• Online Access: http://repo.uum.edu.my/24644/1/%5DSICONSEM%202017%20257%20258.pdf; http://repo.uum.edu.my/24644/
• Institution: Universiti Utara Malaysia

Purpose - The capital structure of MFIs is unique because part of the external financing is subsidized, for instance, by donors, charities or socially responsible investors. Recent trends add to this complexity. Through commercialization, NGO-MFIs are transformed into (regulated) institutions, moving away from donor-dependent, subsidized capital and attracting private investors, thus gaining better access to external capital (Tchuigoua, 2015).Transformation into deposit-collecting institutions allows MFIs to provide needed services to more poor clients as well as to lower the costs of capital (Malikov and Hartarska 2017). Consequently, MFIs have numerous sources of capital, including funds from institutional investments (e.g., microfinance investment funds), development agencies, individuals, foundations, NGOs, banks, international organizations, states and the newest group of depositors. These recent trends in microfinance, highlight the importance of investigating the link between capital structure and outreach performance by microfinance institutions (MFIs).This article estimates the impact of capital structure on the poverty outreach, using panel data estimation method and dataset from MFIs in the Organization of Islamic Cooperations (OIC) countries Methodology - This study employs the panel data econometrics. The dataset covering the five-year period 2011-2015 were analyzed within the framework of fixed- and random-effects techniques. Findings - The results suggest that in most cases, the type of capital used is associated with the performance preferences of the stakeholder it represents, consistent with previous literature (Hartarska and Mersland 2012).Concessional loans are positively associated with MFI outreach.Thus, it is argued that concessional loans allow poorer clients to be served, consistent with Hudon and Traca (2006). Relative to a unit of equity, a one-unit increase in social investors’ loans entails an improves in the social performance.This finding is also consistent with the literature because more use of commercial bank loans is associated with fewer borrowers served.