Do microsavings stimulate financial performance of microfinance institutions in Sub-Saharan Africa?
Abstract
Purpose
The purpose of this paper is to investigate the empirical relationship between microsavings and the financial performance of microfinance institutions (MFIs) in Sub-Saharan Africa (SSA).
Design/methodology/approach
The approach in this paper is decidedly empirical, and employs data obtained from Microfinance Information eXchange (MIX). The data set consists of 350 microfinance MFIs domiciled in 36 Sub-Saharan African countries for the period covering 1998–2012.
Findings
The panel estimation results consistently show that there exists a negative and statistically significant relationship between microsavings and the financial performance of MFIs in SSA. This is perhaps surprising, albeit rational considering the exceedingly elevated operating expenses that ascend from mobilizing and managing microsavings, ceteris paribus, that could erode firm profitability. The paper draws policy implications from these important findings.
Research limitations/implications
Even though generalized method of moment estimation technique was employed and robustness checks, the issue of endogeneity cannot be eliminated entirely.
Practical implications
Microfinance industry is one of the fastest growing segments of the financial sector in SSA. The industry is increasingly becoming the core of financial inclusion in the region where two-thirds of the adult population lack access to formal financial services. Therefore, gaining an in-depth understanding of the role microsavings play in the financial performance of MFIs can contribute to the growth of the industry.
Originality/value
This study is timely considering the significant growth in the number of microsavings – there are currently twice as many microsavings accounts in SSA as there are microcredits. More importantly, based on 400 MFIs, that reported data to MIX in 2016, the total microsavings stood at about US$11bn against an aggregate loan portfolio of about US$10.5bn. The remarkable growth of microsavings in SSA, from less than US$100m in 2000 to US$11bn in 2016, is the main motivation of undertaking this study.
Keywords
Acknowledgements
The author would like to specially thank Dragana Radicic, Godwin Okafor, Ishmael Tingbani, Suraj Shekhar and three anonymous referees for copious valuable comments. Any errors of analysis and interpretation are of the author’s own. The usual disclaimer applies.
Citation
Chikalipah, S. (2018), "Do microsavings stimulate financial performance of microfinance institutions in Sub-Saharan Africa?", Journal of Economic Studies, Vol. 45 No. 5, pp. 1072-1087. https://doi.org/10.1108/JES-05-2017-0131
Publisher
:Emerald Publishing Limited
Copyright © 2018, Emerald Publishing Limited