The influence of capital structure on financial performance of microfinance institutions
The influence of capital structure on financial performance of microfinance institutions

Summary/Abstract: This paper aims to investigate the influence of capital structure on the financialperformance of microfinance institutions (MFIs) using a sample of 89 institutions from 35countries using the data provided by the MIX Market platform for the year 2015.In order to do that, the paper focus on two main objectives: the first one is to evaluate thefinancial performance of microfinance institutions using a synthetic measure-compositeindex based on principal component analysis using several financial indicators and thesecond one is to assess the impact of capital structure on the MFIs financial performancecomposite index using regression techniques, taking into account three proxies for capitalstructure(capital to asset ratio, debt to equity ratio, deposits to total assets) and controllingfor a variety of MFI-specific variables.The empirical results pointed out two important factors for the financial performance ofMFIs: profit margin and yield on gross loan portfolio. Based on the results of the compositeindex, Mexico, Azerbaijan, Bolivia, Nepal, Romania, Moldova, Egypt, Armenia andBolivia are considered to be poles of microfinance performance. In Romania, the bestperformances were recorded by Express Finance, while at the opposite side there areOMRO and Pro-Credit, which performed poorly.Analysing the influence of capital structure on the financial performance of MFIs, asignificant and positive impact have been highlighted by the capital to asset ratio, while forthe other two proxies any influence has been refuted. Therefore, a higher ratio of capital tototal assets is positively associated with a higher MFIs financial performance.

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