Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study
Microfinance institutions have been used as a catalyst tool for increasing the welfare of poor people and fostering economic growth in many regions globally, including Nepal, since the decade of the 70s. However, the issue of financial sustainability in their operations is still emerging. The study...
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Academic Research and Publishing UG
2024-12-01
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| Series: | Financial Markets, Institutions and Risks |
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| Online Access: | https://armgpublishing.com/wp-content/uploads/2025/01/FMIR_4_2024_5.pdf |
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| author | Gyan Mani Adhikari Amrita Sapkota Devendra Parajuli Ganesh Bhattarai |
| author_facet | Gyan Mani Adhikari Amrita Sapkota Devendra Parajuli Ganesh Bhattarai |
| author_sort | Gyan Mani Adhikari |
| collection | DOAJ |
| description | Microfinance institutions have been used as a catalyst tool for increasing the welfare of poor people and fostering economic growth in many regions globally, including Nepal, since the decade of the 70s. However, the issue of financial sustainability in their operations is still emerging. The study aimed to analyze the factors influencing the financial sustainability of microfinance institutions in Nepal. The research employed the two-step system General Method of Moments estimator to analyze the financial sustainability of twenty-five sampled microfinance institutions, out of fifty-seven D-class financial institutions categorized as microfinance institutions and regulated by Nepal Rastra Bank, using cross-sectional data obtained from their comprehensive financial statements spanning from 2016 to 2023. The study used three key indicators - operational self-sufficiency, return on equity, and return on assets - to assess the financial sustainability of the selected microfinance institutions in Nepal. The findings of this study suggested that savings and the number of borrowers significantly and positively affect the financial stability of microfinance. In contrast, member-per-staff and non-performing loans negatively and significantly affect financial sustainability. However, loan portfolios do not significantly affect the financial sustainability of microfinance in Nepal. Further researchers can broaden the scope of the study by including variables such as geographic location, developmental stages, ownership structures, age, product delivery strategies of microfinance institutions, microfinance institution size, and government policy and regulations. |
| format | Article |
| id | doaj-art-904887f3dd0a473ca8908cfe214bcc66 |
| institution | Kabale University |
| issn | 2521-1250 2521-1242 |
| language | English |
| publishDate | 2024-12-01 |
| publisher | Academic Research and Publishing UG |
| record_format | Article |
| series | Financial Markets, Institutions and Risks |
| spelling | doaj-art-904887f3dd0a473ca8908cfe214bcc662025-01-15T12:59:34ZengAcademic Research and Publishing UGFinancial Markets, Institutions and Risks2521-12502521-12422024-12-0184789510.61093/fmir.8(4).78-95.2024Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data StudyGyan Mani Adhikari0https://orcid.org/0009-0002-5388-8691Amrita Sapkota1https://orcid.org/0009-0006-6987-7208Devendra Parajuli2https://orcid.org/0009-0009-6279-249XGanesh Bhattarai3https://orcid.org/0000-0001-9163-5172PhD Scholar, Central Department of Management, Tribhuvan University, Kathmandu, NepalMBAF, Central Department of Management, Tribhuvan University, Kathmandu, NepalMBAF, Central Department of Management, Tribhuvan University, Kathmandu, NepalPhD, Nepal Commerce Campus, Tribhuvan University, Kathmandu, NepalMicrofinance institutions have been used as a catalyst tool for increasing the welfare of poor people and fostering economic growth in many regions globally, including Nepal, since the decade of the 70s. However, the issue of financial sustainability in their operations is still emerging. The study aimed to analyze the factors influencing the financial sustainability of microfinance institutions in Nepal. The research employed the two-step system General Method of Moments estimator to analyze the financial sustainability of twenty-five sampled microfinance institutions, out of fifty-seven D-class financial institutions categorized as microfinance institutions and regulated by Nepal Rastra Bank, using cross-sectional data obtained from their comprehensive financial statements spanning from 2016 to 2023. The study used three key indicators - operational self-sufficiency, return on equity, and return on assets - to assess the financial sustainability of the selected microfinance institutions in Nepal. The findings of this study suggested that savings and the number of borrowers significantly and positively affect the financial stability of microfinance. In contrast, member-per-staff and non-performing loans negatively and significantly affect financial sustainability. However, loan portfolios do not significantly affect the financial sustainability of microfinance in Nepal. Further researchers can broaden the scope of the study by including variables such as geographic location, developmental stages, ownership structures, age, product delivery strategies of microfinance institutions, microfinance institution size, and government policy and regulations.https://armgpublishing.com/wp-content/uploads/2025/01/FMIR_4_2024_5.pdffinancial sustainabilitymicro-financeoperational self-sufficiencyreturn on equityreturn on assetsnon-performing loan |
| spellingShingle | Gyan Mani Adhikari Amrita Sapkota Devendra Parajuli Ganesh Bhattarai Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study Financial Markets, Institutions and Risks financial sustainability micro-finance operational self-sufficiency return on equity return on assets non-performing loan |
| title | Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study |
| title_full | Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study |
| title_fullStr | Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study |
| title_full_unstemmed | Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study |
| title_short | Determinants of Financial Sustainability in Microfinance Institutions: A Panel Data Study |
| title_sort | determinants of financial sustainability in microfinance institutions a panel data study |
| topic | financial sustainability micro-finance operational self-sufficiency return on equity return on assets non-performing loan |
| url | https://armgpublishing.com/wp-content/uploads/2025/01/FMIR_4_2024_5.pdf |
| work_keys_str_mv | AT gyanmaniadhikari determinantsoffinancialsustainabilityinmicrofinanceinstitutionsapaneldatastudy AT amritasapkota determinantsoffinancialsustainabilityinmicrofinanceinstitutionsapaneldatastudy AT devendraparajuli determinantsoffinancialsustainabilityinmicrofinanceinstitutionsapaneldatastudy AT ganeshbhattarai determinantsoffinancialsustainabilityinmicrofinanceinstitutionsapaneldatastudy |