Economics

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Browsing Economics by Author "Adams, Abdulai"

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    Performance of microfinance institutions in Sub-Saharan Africa: a cross country analysis of outreach, sustainability, efficiency and regulation
    (University of Zululand, 2017) Adams, Abdulai; Tewari, D.D
    The overall aim of this study was to conduct a cross-country analysis of micro finance institutions (MFIs) in Sub-Saharan Africa (SSA) in terms of outreach, sustainability, efficiency and regulation. The specific objectives were: (1) To conduct a general institutional review on the performance of MFIs; (2) To analyse the determinants and extent of outreach and sustainability of micro finance institutions in SSA; (3) To investigate the level of operational efficiency of microfinance institutions in SSA and analyse the factors influencing their efficiency and (4) To analyse the effects of financial regulation of MFIs on their sustainability and outreach performances. The estimation methodologies employed were both descriptive and econometric and included the random effects (RE) method, fixed effects (FE) method, stochastic frontier analysis (SFA) and the generalised method of moment (GMM) approach. The results of the outreach analysis indicated that a trade-off exists between the depth and breadth of outreach. The RE regression results showed that the gross loan portfolio, the interest rate, operating expenses to assets ratio, return on assets and return on equity are the main significant determinants of MFIs outreach in SSA. In the sustainability model estimation, the FE results show that a negative and insignificant relation exists between MFIs sustainability as measured by operational self-sufficiency and depth of outreach. However, a negative significant relation is found between return on assets and depth of outreach. The nature of the trade-off between sustainability and outreach, therefore, depends much on the variables used. A positive association exists between breadth of outreach and sustainability and the results are robust and consistent using different measures of outreach. The main determinants of MFIs’ sustainability as revealed from the analysis are the average loan size as a percentage of Gross National Income (GNI), gross loan portfolio, portfolio at risk, operating expense to assets ratio, interest rate, and governance effectiveness. The results of the SFA show that a wide variation of inefficiency exists among MFIs as the institutions achieve an average cost efficiency of 40.09 percent. This suggests that substantial cost reduction possibilities exist which firms need to consider enhancing their efficient operations. The main determinants of MFI efficiency are total assets, operating expenses to assets ratio, average loan balance per saver, the percentage of female borrowers and borrower per staff member. Finally, the GMM estimation revealed that regulation has a significant impact on both the social and financial performance of MFIs in SSA. This implies that the transformation of not-for-profit entities to become regulated institutions need to be pursued to enhance the attainment of the dual goals of MFIs. The study recommends that governments should work to improve the business environments within which MFIs operate and also allocate more budgetary support to pro-poor interventions for complementary development. Also, improvements in the regulatory environment will help ailing MFIs to overcome liquidity constraints and achieve their stated objectives more sustainably. Managers of MFIs should monitor their cost side variables and adopt low-cost outreach technologies (such as the M-Pesa) innovatively to help cut down their cost of operation and improve their efficiency and sustainability
University of Zululand