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Buffer Capital, Loan Portfolio Quality and the Performance of Microfinance Institutions: A Global Analysis

Afrifa, Godfred Adjapong, Gyapong, Ernest, Zalata, Alaa Mansour (2019) Buffer Capital, Loan Portfolio Quality and the Performance of Microfinance Institutions: A Global Analysis. Journal of Financial Stability, 44 . Article Number 100691. ISSN 1572-3089. (doi:10.1016/j.jfs.2019.100691) (KAR id:76073)

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Using a sample of 625 microfinance institutions (MFI) across 40 countries from 2010-2015, we empirically examine the effect of buffer capital on the performance of MFIs and how this effect varies with loan portfolio quality. We find a negative relationship between buffer capital and MFIs’ performance. We further document that loan portfolio quality positively moderates the buffer capital-MFI performance relationship. We demonstrate that the buffer capital-loan portfolio quality relationship does not vary for deposit-taking, profit-making, and regulated MFIs. Our findings shed new light on the value relevance of capital in microfinance institutions. We use a novel approach to evaluate our results in light of the effects of omitted variable bias.

Item Type: Article
DOI/Identification number: 10.1016/j.jfs.2019.100691
Uncontrolled keywords: Buffer capital, microfinance institutions, performance, loan portfolio quality
Subjects: H Social Sciences > HG Finance
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: Godfred Afrifa
Date Deposited: 01 Sep 2019 21:26 UTC
Last Modified: 04 Mar 2024 16:41 UTC
Resource URI: (The current URI for this page, for reference purposes)

University of Kent Author Information

Afrifa, Godfred Adjapong.

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