Predictors of microfinance sustainability: Empirical evidence from Bangladesh

Figures & data

Table 1. Measurement of variables

Variable	Descriptions	Operationalization	References
Financial Sustainability (FSI)	The ability of the MFP to cover its cost from its own generated income, whether subsidized or not.	FSI = ROA+ROE+OSS+FSS	(Bhanot & Bapat, 2015; Saad et al., 2019) (Bayai & Ikhide, 2018;
Organizational Structure (OS)	Different forms of microfinance providers	Microfinance banks =1 Non-banks MFIs = 0	(Mumi et al., 2018)
Growth Outreach (NAB & ALPB)	Increase in the number of active borrowers and Average loan size	No of active borrowers, Average Loan Size,	(Masanyiwa et al., 2022; Rauf & Mahmood, 2009)
Women Empowerment (PWB)	The extent MFPs support women	Percentage of women borrowers	Memon et al. (2020)
Liquidity (LQDT)	The ability of the MFPs to meet the short-term demand of funds.	Shorter-term Asset/Short term liabilities	(Gietzen, 2017)
Leverage (DER)	It is a measurement of the relative level of debt.	Debt to Equity ratio	(Githaiga, 2021; Masanyiwa et al., 2022)
Cost Efficiency (CPB)	It is the level of operating cost used per borrower during the operation	Operating Cost/Number of Active borrowers	(Aziz & Aziz, 2019; Naz et al., 2019)
National Governance (NG)	Voice & accountability, Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law & Control of Corruption.	NG= VA+PS+GE+RQ+RL+CC	(Ahamad et al., 2022; Khan & Zubair, 2014;
Gross Demestic Product (GDP)	Value of finished goods and services produced inside the country, no matter who makes it.	Annual % of country GDP growth	(Bibi et al., 2018; Phan et al., 2019; (Xie et al., 2022)
Inflation (INF)	Annual change in consumer prices	Annual % of country Inflation rate	(Ahlin et al., 2011; Shkodra, 2019)

Table 2. Descriptive Statistics

Var.	Obs.	Mean	Std. Dev	Minimum	Maximum
FSI	345	5.539	0.328	2.266	6.381
ALPB	345	186.440	122.410	27.680	793.08
NAB	345	822,505	1,815,607	5,812	8,934,874
PWB	345	0.921	0.128	0.002	1.271
LQDT	345	3.242	10.193	0.029	135.398
DER	345	7.940	12.588	−0.050	111.001
CPB	345	21.670	14.430	3.720	141.98
GDP	345	0.066	0.007	0.056	0.079
INF	345	0.071	0.017	0.054	0.114
VA	345	−0.467	0.156	−0.747	0.433
PS	345	−1.335	0.216	−1.628	−0.896
GE	345	−0.746	0.058	−0.825	−0.172
RQ	345	−0.882	0.067	−1.001	−0.448
RL	345	−0.772	0.102	−0.929	−0.057
CC	345	−0.961	0.157	−1.434	−0.428

Table 3. Pearson’s Correlation Matrix

Var.	FSI	OS	ALPB	NAB	PWB	LQDT	DER	CPB	NG	GDP	INF
FSI	1.000
OS	−0.121*	1.000
ALPB	0.300*	−0.067*	1.000
NAB	0.285*	0.454 *	−0.053*	1.000
PWB	0.064*	0.071*	−0.247*	0.093*	1.000
LQDT	−0.143*	0.019*	−0.016*	−0.057*	0.010*	1.000
DER	−0.476*	0.131*	−0.125*	−0.270*	−0.063*	0.099*	1.000
CPB	0.062*	−0.121*	0.915*	−0.202*	−0.253*	0.012*	−0.041*	1.000
NG	0.108*	−0.025*	0.593*	−0.011*	−0.026*	−0.011*	−0.041*	0.568*	1.000
GDP	0.174*	−0.009*	0.484*	0.019*	−0.057*	−0.012*	−0.152*	0.455*	0.226*	1.000
INF	−0.150*	0.010*	−0.454*	−0.002*	0.072*	−0.010*	0.049*	−0.386*	−0.200*	−0.299*	1.000

Note: * p < 0.01, ** p < 0.05, *** p < 0.10, Where FSI is the financial sustainability index, OS is Organizational structure, ALPB is the average loan per borrower, NAB is the number of active borrowers, PWB is the percentage of women borrowers, Lqdt is liquidity, DER is leverage, CPB is the cost per borrower, NG is National governance indicators Index.

Table 4. Simple Linear Regression Model

Variable	OLS	REM	FEM	2SLS	(Sys) GMM
FSI=L				0.132** (0.094)	0.151*** (0.029)
OS	−1.021*** (0.230)	−0.794 (0.511)		−0.899*** (0.24)	−1.101*** (0.305)
ALPB	2.114*** (0.170)	1.841*** (0.159)	1.944*** (0.165)	1.947*** (0.196)	1.875*** (1.951)
NAB	0.0843*** (0.030)	0.045 (0.058)	−0.487*** (0.162)	0.076** (0.033)	0.151** (0.074)
PWB	0.775** (0.314)	0.574* (0.343)	0.236 (0.375)	0.754** (0.306)	0.880*** (0.273)
LQDT	−0.008* (0.005)	−0.110*** (0.004)	−0.007* (0.004)	−0.008* (0.004)	−0.001*** (0.003)
DER	−0.031*** (0.005)	−0.031*** (0.006)	−0.026*** (0.006)	−0.025*** (0.005)	−0.022** (0.106)
CPB	−1.978*** (0.185)	−1.608*** (0.172)	−1.568*** (0.173)	1.739*** (0.200)	−1.440*** (0.272)
NG	−0.160 (0.108)	−0.175* (0.101)	−0.118 (0.104)	−0.013 (0.114)	−0.237*** (0.069)
GDP	1.312 (6.506)	0.441 (5.675)	1.914 (5.649)	−6.227 (7.062)	−17.671*** (3.870)
INF	1.664 (2.490)	1.787 (2.149)	1.283 (2.128)	2.855 (2.476)	2.012** (0.938)
Constant	−0.787 (1.038)	−0.188 (1.093)	5.165*** (1.871)	−1.593 (1.056)	−3.070** (1.499)
Observations	345	345	345	315	285
R-Squared	0.5321	0.6236	0.4371	0.5832
F-Stat	37.99***	259.7***	26.40***	413.01***	529173.27***
Breusch Pagan LM test for random(panel) effect				98.16***
Hausman test				8.87***
Multicollinearity Test: mean VIF				2.62
Heteroskedasticity test (Modified Walt test)				2811.13***
Auto Correlation (Wooldridge test)				13.911***
Endogeneity test (Dubrin & Wu-Hausman test)				5.95984**/5.82407**
Arellano bond test AR(1) (Prob)				0.043
Arellano bond test AR(2) (Prob)				0.877
Sargan test of overid. Restrictions: chi2(61)				0.130
Hanson test of overid. Restrictions: chi2(61)				0.314

Note: Regression in column 5^th is two-step system GMM, Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.10, Where FSI is financial sustainability index, OS is Organizational structure, ALPB is average loan per borrower, NAB is the number of the active borrower, PWB is the percentage of women borrowers, LQDT is liquidity, DER is leverage, CPB is the cost per borrower, NG is National governance indicators Index.

Table 5. Regression Analysis with Interaction Terms

Variable	OLS	REM	FEM	2SLS	(Sys) GMM
FSI=L				0.110** (0.093)	0.244*** (0.061)
OS	0.057 (1.097)	0.184 (1.041)		1.034 (1.454)	10.630* (6.020)
ALPB	2.745*** (0.964)	3.080*** (0.838)	2.802*** (0.834)	1.960* (1.059)	8.109*** (1.862)
NAB	−0.056 (0.149)	−0.156 (0.136)	−0.516*** (0.182)	−0.086 (0.196)	−1.238*** (0.410)
PWB	−2.823 (1.821)	0.324 (1.621)	0.729 (1.611)	−5.597** (2.509)	4.306 (7.433)
LQDT	−0.008* (0.004)	−0.011*** (0.004)	−0.0008* (0.004)	−0.007* (0.004)	−0.010*** (0.002)
DER	−0.119*** (0.027)	−0.111*** (0.024)	−0.094*** (0.025)	−0.092*** (0.030)	−0.047 (0.116)
CPB	−2.695 (0.920)	−3.189*** (0.804)	−2.968*** (0.805)	−0.793 (1.132)	−8.557*** (2.476)
NG	−3.095 (2.715)	−2.166 (2.409)	−2.310 (2.396)	−0.417 (3.956)	0.322 (2.885)
GDP	1.723 (7.889)	−0.762 (7.122)	−2.789 (7.189)	1.177 (8.269)	−0.671 (0.517)
INF	1.587 (2.555)	2.198 (2.248)	2.322 (2.252)	2.240 (2.455)	0.012 (0.006)
OSxNG	−0.622 (0.605)	−0.599 (0.515)	−0.461 (0.5090	−1.070 (0.781)	−5.197* (2.885)
ALPBxNG	−0.357 (0.504)	−0.656 (0.439)	−0.447 (0.441)	−0.054 (0.547)	−3.062*** (0.907)
NABxNG	0.080 (0.081)	0.117* (0.070)	0.064 (0.072)	0.090 (0.103)	0.506** (0.201)
PWBxNG	1.956** (0.945)	0.186 (0.852)	−0.230 (0.855)	3.178** (1.276)	−1.900 (3.655)
DERxNG	0.047*** (0.014)	0.044*** (0.013)	0.037*** (0.013)	0.036** (0.015)	0.007 (0.061)
CPBxNG	0.428 (0.477)	0.856** (0.416)	0.759* (0.418)	−0.465 (0.577)	3.281*** (1.159)
Constant	4.261 (4.984)	3.016 (4.413)	7.844* (4.671)	−0.525 (7.385)	2.369 (10.783)
Observations	345	345	345	315	285
R-Squared	0.5560	0.6193	0.4656	0.6001
F-Stat	25.67***	286.74***	17.42***	450.33***	1704.35***
Breusch Pagan LM test for random(panel) effect				89.27***
Hausman test				55.28***
Heteroskedasticity test (Modified Walt test)				6912.59***
Auto Correlation (Wooldridge test)				14.571***
Endogeneity test (Dubrin & Wu-Hausman test)				5.893**/5.643**
Arellano bond test AR(1) (Prob)				0.036
Arellano bond test AR(2) (Prob)				0.618
Sargan test of overid. Restrictions: chi2(61)				0.492
Hanson test of overid. Restrictions: chi2(61)				0.308

Note: Regression in column 5^th is two-step system GMM, Standard errors in parentheses, *** p < 0.01, ** p < 0.05, * p < 0.10, Where FSI is financial sustainability index, OS is Organizational structure, ALPB is average loan per borrower, NAB is the number of the active borrower, PWB is the percentage of women borrowers, Lqdt is liquidity, DER is leverage, CPB is the cost per borrower, NGI is National governance indicators.

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