This paper examines factors affecting loan portfolio quality of MFIs in
Haiti, over the period of October 2016 to September 2021, using a sample of
four non-cooperative MFIs (MFI1, MFI2, MFI3 and MFI4) offering individual
loans. This study applies the Ordinary Least Squares (OLS) regression to
estimate the effects of two macroeconomic variables (exchange rate and
inflation rate) and two micro-variables (loan amount per borrower and gross
loan portfolio) on loan portfolio quality, measured by portfolio at risk over
30 days (PAR30). One statistical model has been specified for all MFIs and one
statistical model has been specified for each MFI individually. Overall, the
results show that portfolio at risk of MFIs can increase with the depreciation
of local currency and as the inflation rises; but the results are not
statistically significant. However, distinctively, the findings of MFI1 and
MFI3 indicate a positive and statistically significant association with the
exchange rate, while the output of MFI4 suggests a negative and insignificant
relationship with the exchange rate. Only the result of MFI2 indicates a
negative and insignificant relationship between the loan portfolio quality and
the inflation rate. On the other hand, the growth of the loan portfolio affects
adversely and significantly the loan portfolio at risk of MFIs globally and
individually, except MFI3 that indicates a negative and insignificant association
with the gross loan portfolio. Among the four MFIs, only the finding of MFI4
shows that the loan portfolio quality would significantly improve as the amount
disbursed per borrower increases. In contrast, for the rest of MFIs, as the
loan amount increases, the PAR30 would rise. Some implications can be drawn in
light of these findings. Authorities should create a promising macroeconomic
environment that would help MFIs to limit their credit risk. Moreover, MFIs
should reinforce their credit analysis, collection procedures and practices, in
order to ensure their loan portfolio growth, without compromising its quality.
References
[1]
Adugna, S. (2014). Determinants of Microfinance Institutions Loan Portfolios Quality: Empirical Evidence from Ethiopia. Addis Ababa University Working Paper.
[2]
Agasha, E., Monametsi, G., & Feela, T. (2020). Loan Portfolio Quality of Microfinance Institutions in Uganda: A Qualitative Assessment. Journal of Financial Risk Management, 9, 155-177. https://doi.org/10.4236/jfrm.2020.92009
[3]
Akinlo, O., & Emmanuel, M. (2014). Determinants of Non-Performing Loans in Nigeria. Accounting & Taxation, 6, 21-28.
[4]
Armendáriz, B., & Morduch, J. (2000). Microfinance beyond Group Lending. Economics of Transition and Institutional Change, 8, 401-420. https://doi.org/10.1111/1468-0351.00049
[5]
Berger, A. N., & Udell, G. F. (1995). Relationship Lending and Lines of Credit in Small Firm Finance. The Journal of Business, 68, 351-381. https://doi.org/10.1086/296668
[6]
Bitok, S. K., Cheboi, Y. J., & Kemboi, A. (2020). Does Portfolio Quality Influence Financial Sustainability? A Case of Microfinance Institutions in Kenya. Asian Journal of Business Environment, 10, 37-43. https://doi.org/10.13106/jbees.2020.vol10.no1.37
[7]
Chikalipah, S. (2018). Credit Risk in Microfinance Industry: Evidence from Sub-Saharan Africa. Review of Development Finance, 8, 38-48. https://doi.org/10.1016/j.rdf.2018.05.004
[8]
Ciguino, H., & Paul, B. (2016). Microfinance et performance financière des microentreprises en Haïti. études Caribéennes, No. 35, 1-11.
[9]
Ciguino, H., & Paul, B. (2021). Analyse de l’impact des programmes de microfinance dans la performance des microentreprises. Collection Economie et Développement (ECODEV)/ Université Quisqueya. Port-au-Prince, Haiti.
[10]
Conning, J., & Morduch, J. (2011). Microfinance and Social Investment. Annual Review of Financial Economics, 3, 407-434. https://doi.org/10.1146/annurev-financial-102710-144909
DAI Finance Inclusive (2019). Quarterly Performance Report. Year 3, Fiscal Year 2019-Q2. USAID Haiti.
[13]
Daly, S., & Frikha, M. (2016). Banks and Economic Growth in Developing Countries: What about Islamic Banks? Cogent Economics & Finance, 4, Article ID: 1168728. https://doi.org/10.1080/23322039.2016.1168728
[14]
Dewez, D., HornWelch, K., & Devaney, P. (2003). Accion Poverty Outreach Findings: MFI4, Haiti. ACCION InSight Series, No. 8. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=906583
[15]
Dung, P. T. (2020). Determinants of Loan Repayment Performance of Microbusiness Borrowers in Vietnam. Vietnam National University, Vietnam Japan University.
[16]
Fabozzi, F., Gupta, F., & Markowitz, H. (2002). The Legacy of Modern Portfolio Theory. The Journal of Investing, 11, 7-22. https://doi.org/10.3905/joi.2002.319510
[17]
Francis, J., C., & Kim, D. (2013). Modern Portfolio Theory: Foundation, Analysis and New Development (1st ed.). John Wiley & Sons, Inc.
[18]
Hair, J. F., Anderson, R. E., Tatham, R. L., & Black, W. C. (1995). Multivariate Data Analysis (3rd ed.). Macmillan.
[19]
Harhoff, D., & Körting, T. (1998). Lending Relationships in Germany—Empirical Evidence from Survey Data. Journal of Banking & Finance, 22, 1317-1353. https://doi.org/10.1016/S0378-4266(98)00061-2
[20]
Heiden, S., Klein, C., & Zwergel, B. (2013). Beyond Fundamentals: Investor Sentiment and Exchange Rate Forecasting. European Financial Management, 19, 558-578. https://doi.org/10.1111/j.1468-036X.2010.00593.x
[21]
Hitchcock, J. (2014). Determinants of Microfinance Loan Performance and Fluctuation over the Business Cycle. Haverford College, Haverford, United States.
[22]
Hulme, D., & Mosley, P. (1996). Finance against Poverty, 1 and 2. Routledge.
[23]
Jote, G. G. (2018). Determinants of Loan Repayment: The Case of Microfinance Institutions in Gedeo Zone, SNNPRS, Ethiopia. Universal Journal of Accounting and Finance, 6, 108-122. https://doi.org/10.13189/ujaf.2018.060303
[24]
Julien, L., & Cadet, L. R. (2013). Microfinance in Haiti: Do the Poorest Have Access to Credit? Conference Paper Presented at the 3rd European Research Conference on Microfinance, June 2013. University of Agder, Norway. https://www.researchgate.net/publication/259693882
[25]
Keshtgar, N., Pahlavani, M., & Mirjalili, S. H. (2020). The Impact of Exchange Rate Volatility on Banking Performance (Case of Iran). International Journal of Business and Development Studies, 12, 39-56.
[26]
Khemraj, T., & Pasha, S. (2009). The Determinants of Non-Performing Loans: An Econometric Case Study of Guyana. MPRA Paper, University Library of Munich.
[27]
Leeth, J. D., & Scott, J. A. (1989).The Incidence of Secured Debt: Evidence from the Small Business Community. Journal of Financial and Quantitative Analysis, 24, 379-394. https://doi.org/10.2307/2330818
[28]
Lustin, D. (2005). La microfinance et son rôle potentiel dans l’allègement de la pauvreté et le développement en Haïti. Commission Economique pour l’Amérique Latine et les Caraïbes (CEPALC).
[29]
Mangram, M. E. (2013). A Simplified Perspective of the Markowitz Portfolio Theory. Global Journal of Business Research, 7, 59-70. https://ssrn.com/abstract=2147880
[30]
Markowitz, H. (1952). Portfolio Selection. The Journal of Finance, 7, 77-91. https://doi.org/10.1111/j.1540-6261.1952.tb01525.x
[31]
MicroRate (2014). Technical Guide: Performance and Social Indicators for Microfinance Institutions. http://www.microrate.com/
[32]
Mikir, M., & Milkessa, A. (2020). Determinants of Loan Repayment Performance of Omo Microfinance Institution: In the Case of Mizan Aman Town, Southwest Ethiopia. Research Journal of Business Management, 14, 7-14. https://doi.org/10.3923/rjbm.2020.7.14
[33]
Necesito, N. T. (2016). Testing the Portfolio Risk in Philippine Microfinance Institutions. Asia-Pacific Social Science Review, 16, 32-45.
[34]
Pal, D., & Mitra, S. K. (2017). Does the Number of Borrowers per Loan Officer Influence Microfinance Institution Asset Quality? A Stochastic Frontier Analysis. Investigación Económica, 76, 81-103. https://doi.org/10.1016/j.inveco.2016.11.007
[35]
Papias, M. M., & Ganesan, P. (2009). Repayment Behavior in Credit and Savings Cooperative Societies: Empirical and Theoretical Evidence from Rural Rwanda. International Journal of Social Economics, 36, 608-625. https://doi.org/10.1108/03068290910954059
[36]
Paul, B., Garrabé, M., & Daméus, A. (2011). Impact de la politique d’octroi de crédits sur les comportements des emprunteurs: étude de cas de l’intermédiation microfinance en Haïti. Management & Avenir, No. 46, 298-318.
[37]
Pfaff, B. (2012). Financial Risk Modelling and Portfolio Optimization with R. John Wiley & Sons. https://doi.org/10.1002/9781118477144
[38]
Schreiner, M. (1999). A Scoring Model of the Risk of Costly Arrears at a Microfinance Lender in Bolivia. Center for Social Development, Washington University in St. Louis. http://www.microfinance.com
[39]
Setargie, S. (2013). Credit Default Risk and Its Determinants of Microfinance Industry in Ethiopia. Ethiopian Journal of Business and Economics, 3, 21 p.
[40]
Shingjergji, A. (2013). The Impact of Macroeconomic Variables on the Non-Performing Loans in the Albanian Banking System during 2005-2012. Academic Journal of Interdisciplinary Studies, 2, 335-339.
[41]
Shrestha, N. (2020). Detecting Multicollinearity in Regression Analysis. American Journal of Applied Mathematics and Statistics, 8, 39-42. https://doi.org/10.12691/ajams-8-2-1
[42]
Singh, S. (2018). Microfinance and the Mirage of Women’s Empowerment. E-International Relations.
[43]
Stiglitz, J. E., & Weiss, A. (1981). Credit Rationing in Markets with Imperfect Information. The American Economic Review, 71, 393-410. http://www.jstor.org/stable/1802787
[44]
Teferi, O. (2019). Determinants of Microfinance Institutions Loan Portfolios Quality: Empirical Evidence from Ethiopia. European Journal of Business and Management, 11, 19-23.
[45]
Tehulu, T. A., & Abegaz, T. M. (2016). Determinant Factors in Credit Risk Management of Microfinance Institutions in Ethiopia. Journal of Policy and Development Studies, 10, 118-129. https://doi.org/10.12816/0032103
[46]
Vogelgesang, U. (2003). Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior. World Development, 31, 2085-2114. https://doi.org/10.1016/j.worlddev.2003.09.004
[47]
World Bank (2021). World Development Report 2021: Data for Better Lives. https://www.worldbank.org/en/publication/wdr2021