Determinants of capital adequacy and voluntary capital buffer among microfinance institutions in an emerging market

Figures & data

Figure 1. Evolution of microfinance in Ghana.

This Figure provides a brief description of the major timelines showing the changes that the Microfinance sector went through in Ghana in the pre- and post-independence contexts.

Table 1. Financial sector statistics, Share and asset value

	Assets at December Year End
Institution Type	No.	2020(GH¢’ M)	Share (%)	No.	2021(GH ¢’ M)	Share (%)
Banks	23	149,322.26	91.1	23	179,803.64	91.7
SDIs	366	14,548.84	8.9	365	16,347.78	8.3
SLs/FHs	42	7,482.43	4.6	41	8,502.96	4.3
RCBs	144	6,170.88	3.8	144	6,758.81	3.4
MFIs	180	895.53	0.5	180	1,086.01	0.6
Total	389	163,871.10	100.00	388	196,151.42	100.00

Note – Where SDIs represent specialized depositing-taking institutions, SL/FHs represents savings and loans, finance houses and mortgage and leasing companies, RCBs represent rural and community banks and MFIs represent microfinance institutions.

Source: Bank of Ghana Annual Report for 2021 (Bank of Ghana, 2022)

Figure 2. Conceptual framework on the determinants of capital adequacy of MFIs.

Source: Conceptualized by Author

Table 2. Description of variables

Variable	Description
CAR	Capital adequacy (Equation 1(1) $CAR=\frac{(Tier1Capital+Tier2Capital)}{RiskWeightedAssets}$(1) )
CAB	Capital Buffer, 1 when Buffer is positive, otherwise 0 (Equation 2(2) $Buffe{r}_{i,t}=CA{R}_{it}-Base{l}_{i,t}$(2) )
NPL	Non-performing loans to total loans (credit risk)
IDIV	Income diversification (Equation 3(3) $IDIV=1-\left|\frac{(net-non)}{totinc}\right|$(3) )
SIZE	Natural logarithm of total assets (firm size)
ROA	Return on asset (firm profitability)
LOTA	Loans to total assets (liquidity or lending channel)
ETA	Equity to assets (capital risk)
QGDPG	Quarterly Gross Domestic Product Growth (economic growth)

Source: Conceptualized by Author

Table 3. Descriptive statistics – pooled, deposit-taking and non-deposit-taking MFIs

Variables	Obs	Mean	Std. Dev.	Min	Max	Mean Diff.
	Pool for All Microfinance Institutions
CAR	5747	0.375	2.024	−44.458	50.000	0.198***
NPL	5753	0.285	1.633	−47.202	39.968	−0.019
IDIV	4724	0.233	0.573	−4.977	1.000	−0.024
SIZE	5749	13.917	1.355	6.908	18.781	−0.204***
ROA	4883	−0.010	0.606	−37.681	17.627	−0.048**
LOTA	5753	0.509	3.154	−67.046	181.359	0.515***
ETA	5753	0.260	1.981	−41.225	119.765	0.108
QGDPG	5753	4.885	4.848	−4.673	12.471	−0.153
ASSETS (GH¢)	5753	3368547.7	9641767.1	−614420.49	1.433e + 08	−831514.7**
EQUITY (GH¢)	5753	610736.13	3513679.2	−87311479	23400538	269205.5**
Variables	Obs	Mean	Std. Dev.	Min	Max
	Deposit Taking Microfinance Institutions
CAR	4866	0.345	2.048	−44.458	50.000
NPL	4867	0.288	1.715	−47.202	39.968
IDIV	3956	0.237	0.605	−4.977	1.000
SIZE	4863	13.948	1.344	8.494	18.781
ROA	4079	−0.002	0.299	−2.479	17.627
LOTA	4867	0.430	1.005	−67.046	6.230
ETA	4867	0.243	2.042	−41.225	119.765
QGDPG	4867	4.909	4.845	−4.673	12.471
Variables	Obs	Mean	Std. Dev.	Min	Max
	Non-Deposit Taking Microfinance Institutions
CAR	881	0.542	1.875	−22.512	23.295
NPL	886	0.269	1.074	0.000	21.875
IDIV	768	0.213	0.360	−2.564	0.958
SIZE	886	13.745	1.401	6.908	18.182
ROA	804	−0.051	1.332	−37.681	1.042
LOTA	886	0.945	7.675	−0.177	181.359
ETA	886	0.352	1.606	−22.499	21.371
QGDPG	886	4.756	4.862	−4.673	12.471

Note – Where CAR represents capital adequacy, NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents natural logarithm of total assets, ROA represents return on asset, LOTA represents loans to total assets, ETA represents equity to assets, and QGDPG represents quarterly GDP growth.

Source: Authors’ computation in STATA18

Table 4. Correlation and variance inflation factor

Variables	VIF	(1)	(2)	(3)	(4)	(5)	(6)	(7)
(1) NPL	1.03	1.000
(2) IDIV	1.01	0.023	1.000
(3) SIZE	1.03	−0.059***	−0.082***	1.000
(4) ROA	24.50	−0.022	−0.003	0.053***	1.000
(5) LOTA	23.10	−0.006	0.015	−0.070***	−0.974***	1.000
(6) ETA	1.33	−0.123***	0.047***	−0.012	0.359***	−0.224***	1.000
(7) QGDPG	1.02	0.033**	0.014	0.072***	0.007	−0.002	−0.021	1.000

Note – Where NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents natural logarithm of total assets, ROA represents return on asset, LOTA represents loans to total assets, ETA represents equity to assets, QGDPG represents quarterly GDP growth, and VIF represents variance inflation factor. Also, “***”, “**” and “*” represents significant levels at 1%, 5% and 10%, respectively.

Source: Authors’ computation in STATA18

Figure 3. Determinants of capital adequacy ratio among deposit-taking microfinance firms.

Note – We report regression coefficients under the two-stage least squares (2SLS) regression with an instrumental variable for non-deposit-taking Microfinance Institutions. The diagram shows the alternatives when profitability or loan to asset is included. We assume 95% confidence level for the confidence interval (CI). Also, “***”, “**” and “*” represents significant levels at 1%, 5% and 10%, respectively.

Figure 4. Determinants of capital adequacy ratio among non-deposit-taking microfinance firms.

Note – We report regression coefficients under the two-stage least squares (2SLS) regression with an instrumental variable for non-deposit-taking Microfinance Institutions. The diagram shows the alternatives when profitability or loan to asset is included. We assume 95% confidence level for the confidence interval (CI). Also, “***”, “**” and “*” represents significant levels at 1%, 5% and 10%, respectively.

Table 5. Determinants of capital adequacy of microfinance institutions—ROA model

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	2-Stage Least Squares (2SLS) with Instrumental Variable				Ordinary Least Squares (OLS)
Variables	CAR	CAR	CAR	CAR	CAR	CAR	CAR	CAR
NPL	−0.181***	−0.18***	−0.161***	−0.179***	−0.102***	−0.101***	−0.089***	−0.101***
	(0.018)	(0.018)	(0.017)	(0.018)	(0.016)	(0.016)	(0.015)	(0.016)
IDIV	0.315***	0.453***	0.286***	0.319***	0.217***	0.321***	0.196***	0.221***
	(0.054)	(0.075)	(0.052)	(0.054)	(0.047)	(0.065)	(0.046)	(0.047)
IDIV^2		0.077***				0.058**
		(0.028)				(0.025)
SIZE	0.058**	0.059**	3.020***	0.066***	0.072***	0.073***	3.733***	0.078***
	(0.023)	(0.023)	(0.316)	(0.024)	(0.020)	(0.020)	(0.280)	(0.021)
SIZE^2			−0.104***				−0.128***
			(0.011)				(0.010)
ROA	0.233***	0.234***	0.053	0.230***	−0.437***	−0.435***	−0.560***	−0.436***
	(0.058)	(0.058)	(0.056)	(0.058)	(0.047)	(0.047)	(0.047)	(0.047)
ETA	−0.154***	−0.154***	−0.08***	−0.151***	0.379***	0.378***	0.391***	0.378***
	(0.023)	(0.023)	(0.021)	(0.023)	(0.014)	(0.014)	(0.013)	(0.014)
QGDPG	−0.020***	−0.020***	−0.021***	−0.013	−0.017***	−0.016***	−0.019***	−0.230
	(0.006)	(0.006)	(0.006)	(0.081)	(0.006)	(0.006)	(0.005)	(0.163)
_cons	−0.365	−0.448	−21.356***	−0.637	−0.710**	−0.772***	−26.621***	0.017
	(0.330)	(0.331)	(2.253)	(0.561)	(0.286)	(0.287)	(2.000)	(0.649)
Observations	4714	4714	4714	4714	4714	4714	4714	4714
Quarterly FE	No	No	No	Yes	No	No	No	Yes
No. of MFIs	439	439	439	439	439	439	439	439
R-squared	-	-	-	-	0.167	0.168	0.196	0.169
F-stats (p-value)					157.14***	135.60***	164.04***	50.22***
Wald Chi (χ^2)	168.45***	174.85***	244.65***	179.95***
Tests of Endogeneity
Durbin (score) Chi (χ^2)	1345.25***	1343.07***	1231.91***	1338.73***
Wu-Hausman F-stats	1879.25***	1874.59***	1664.55***	1861.37***
Instrument Test
First stage F-stat	4100***	4105.57***	4658.28***	4120.53***
Weak Instrument	No	No	No	No
Over-identification	No	No	No	No

Note – Where CAR represents capital adequacy, NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, ROA represents return on asset, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Models 1–4 are based on two-stage least squares with an instrumental variable while Models 5–8 are based on ordinary least squares regression. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10% respectively. We provide test statistics on the instrumental variables for the instrumented two-stage least squares regression.

Source: Authors’ computation in STATA18

Table 6. Determinants of capital adequacy of microfinance institutions—LOTA model

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)
	2-Stage Least Squares (2SLS) with Instrumental Variable				Ordinary Least Squares (OLS)
Variables	CAR	CAR	CAR	CAR	CAR	CAR	CAR	CAR
NPL	−0.179***	−0.178***	−0.157***	−0.177***	−0.101***	−0.100***	−0.087***	−0.100***
	(0.018)	(0.018)	(0.017)	(0.018)	(0.016)	(0.016)	(0.015)	(0.016)
IDIV	0.312***	0.447***	0.281***	0.317***	0.214***	0.321***	0.192***	0.218***
	(0.054)	(0.074)	(0.052)	(0.054)	(0.047)	(0.065)	(0.046)	(0.047)
IDIV^2		0.075***				0.060**
		(0.028)				(0.025)
SIZE	0.061***	0.063***	3.155***	0.069***	0.068***	0.069***	3.681***	0.074***
	(0.023)	(0.023)	(0.313)	(0.023)	(0.020)	(0.020)	(0.281)	(0.021)
SIZE^2			−0.108***				−0.126***
			(0.011)				(0.010)
LOTA	−0.023*	−0.023*	0.013	−0.023**	0.084***	0.083***	0.109***	0.083***
	(0.012)	(0.012)	(0.011)	(0.012)	(0.010)	(0.010)	(0.010)	(0.010)
ETA	−0.131***	−0.13***	−0.061***	−0.129***	0.364***	0.364***	0.374***	0.364***
	(0.021)	(0.021)	(0.020)	(0.021)	(0.013)	(0.013)	(0.013)	(0.013)
QGDPG	−0.020***	−0.020***	−0.021***	−0.012	−0.016***	−0.016***	−0.018***	−0.219
	(0.006)	(0.006)	(0.006)	(0.080)	(0.006)	(0.006)	(0.005)	(0.163)
_cons	−0.413	−0.495	−22.346***	−0.691	−0.698**	−0.763***	−26.271***	−0.004
	(0.327)	(0.328)	(2.232)	(0.556)	(0.287)	(0.288)	(2.005)	(0.650)
Observations	4714	4714	4714	4714	4714	4714	4714	4714
Quarterly FE	No	No	No	Yes	No	No	No	Yes
No. of MFIs	439	439	439	439	439	439	439	439
R-squared	-	-	0.001	-	0.164	0.165	0.192	0.166
F-stats (p-value)					153.89***	132.87***	160.24***	49.14***
Wald Chi (χ^2)	162.29***	168.66***	248.89***	174.15***
Tests of Endogeneity
Durbin (score) Chi (χ^2)	1356.21***	1353.82***	1248.84***	1350.26***
Wu-Hausman F-stats	1900.74***	1895.65***	1695.68***	1883.84***
Instrument Test
First stage F-stat	4534.44***	4540.68***	5251.61***	4555.92***
Weak Instrument	No	No	No	No
Over-identification	No	No	No	No

Note – Where CAR represents capital adequacy, NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, LOTA represents loans to total assets, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Models 1–4 are based on two-stage least squares with an instrumental variable while Models 5–8 are based on ordinary least squares regression. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10%, respectively. We provide test statistics on the instrumental variables for the instrumented two-stage least squares regression.

Source: Authors’ computation in STATA18

Figure 5. Interaction of profitability and equity to total assets on capital adequacy.

Note – We report OLS coefficients and scatter diagrams stratified based on the deposit-taking status of the MFIs. We assume 95% confidence level for the confidence interval (CI).

Table 7. Determinants of voluntary capital buffer (ROA model)

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
	Voluntary Capital Buffer
	Bank of Ghana Rate		Basel II Minimum		Minimum III		Basel II Maximum		Basel II Maximum
Variable	10%	10%	8%	8%	10.5%	10.5%	11%	11%	13%	13%
NPL	−0.028***	−0.027***	−0.028***	−0.027***	−0.028***	−0.027***	−0.028***	−0.027***	−0.027***	−0.027***
	(0.004)	(0.004)	(0.003)	(0.003)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)
IDIV	0.112***	0.113***	0.116***	0.116***	0.110***	0.111***	0.110***	0.111***	0.123***	0.125***
	(0.011)	(0.011)	(0.010)	(0.010)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)
SIZE	0.011**	0.013***	0.017***	0.019***	0.009**	0.011**	0.007	0.009**	0.0009	0.002
	(0.005)	(0.005)	(0.004)	(0.004)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)
ROA	0.043***	0.042***	0.043***	0.042***	0.043***	0.042***	0.043***	0.042***	0.043***	0.043***
	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.012)	(0.012)
ETA	−0.015***	−0.014***	−0.015***	−0.014***	−0.015***	−0.014***	−0.014***	−0.014***	−0.014***	−0.013***
	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.005)	(0.005)	(0.005)	(0.005)
QGDPG	−0.005***	−0.016	−0.005***	−0.016	−0.005***	−0.014	−0.004***	−0.015	−0.004***	−0.018
	(0.001)	(0.016)	(0.001)	(0.015)	(0.001)	(0.016)	(0.001)	(0.016)	(0.001)	(0.016)
_cons	0.639***	0.636***	0.566***	0.561***	0.657***	0.649***	0.674***	0.672***	0.753***	0.765***
	(0.064)	(0.108)	(0.063)	(0.106)	(0.064)	(0.109)	(0.065)	(0.110)	(0.067)	(0.112)
Observations	4720	4720	4720	4720	4720	4720	4720	4720	4720	4720
Quarterly FE	No	Yes	No	Yes	No	Yes	No	Yes	No	Yes
No. of MFIs	439	439	439	439	439	439	439	439	439	439
R-squared	0.009	0.015	0.013	0.019	0.008	0.014	0.008	0.013	0.013	0.018
Wald Chi (χ^2)	197.84***	219.19***	224.09***	224.19***	190.85***	210.21***	181.39***	200.85***	195.76***	217.48***
Endogeneity Test	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Instrument Tests	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note – Where outcome variable is the voluntary capital buffer (CAB), NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, ROA represents return on asset, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10%, respectively.

Source: Authors’ computation in STATA18

Table 8. Determinants of voluntary capital buffer (LOTA model)

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
	Voluntary Capital Buffer
	Bank of Ghana Rate		Basel II Minimum		Minimum III		Basel II Maximum		Basel III Maximum
Variable	10%	10%	8%	8%	10.5%	10.5%	11%	11%	13%	13%
NPL	−0.028***	−0.027***	−0.028***	−0.027***	−0.027***	−0.027***	−0.027***	−0.027***	−0.027***	−0.026***
	(0.004)	(0.003)	(0.003)	(0.003)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)
IDIV	0.111***	0.112***	0.115***	0.116***	0.110***	0.111***	0.109***	0.110***	0.123***	0.124***
	(0.010)	(0.010)	(0.010)	(0.010)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)	(0.011)
SIZE	0.011**	0.013***	0.018***	0.019***	0.010**	0.012**	0.008*	0.010**	0.001	0.003
	(0.005)	(0.005)	(0.004)	(0.004)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)
LOTA	−0.004*	−0.004*	−0.004*	−0.004*	−0.004*	−0.004*	−0.004*	−0.004*	−0.004*	−0.005*
	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)	(0.002)
ETA	−0.011**	−0.010**	−0.011***	−0.010**	−0.011**	−0.010**	−0.010**	−0.010**	−0.010**	−0.009**
	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)	(0.004)
QGDPG	−0.005***	−0.015	−0.005***	−0.016	−0.005***	−0.013	−0.004***	−0.015	−0.004***	−0.018
	(0.001)	(0.016)	(0.001)	(0.015)	(0.001)	(0.016)	(0.001)	(0.016)	(0.001)	(0.016)
_cons	0.630***	0.626***	0.557***	0.551***	0.649***	0.64***	0.665***	0.662***	0.744***	0.755***
	(0.064)	(0.108)	(0.062)	(0.105)	(0.064)	(0.109)	(0.065)	(0.110)	(0.066)	(0.112)
Observations	4720	4720	4720	4720	4720	4720	4720	4720	4720	4720
Quarterly FE	No	Yes	No	Yes	No	Yes	No	Yes	No	Yes
No. of MFIs	439	439	439	439	439	439	439	439	439	439
R-squared	0.016	0.022	0.020	0.026	0.015	0.021	0.015	0.019	0.020	0.025
Wald Chi (χ^2)	189.10***	210.95***	215.14***	235.79***	182.18***	201.96***	172.92***	192.73***	187.46***	209.53***
Endogeneity Test	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes
Instrument Tests	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes	Yes

Note – Where outcome variable is the voluntary capital buffer (CAB), NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, LOTA represents loans to total assets, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10%, respectively.

Source: Authors’ computation in STATA18

Table 9. Voluntary capital buffer by deposit-taking and non-deposit-taking MFIs (ROA model)

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
	Bank of Ghana Rate		Basel II Minimum		Minimum III		Basel II Maximum		Basel III Maximum
Variable	10%	10%	8%	8%	10.5%	10.5%	11%	11%	13%	13%
	Deposit Taking MFIs
NPL	−0.035***	−0.034***	−0.036***	−0.035***	−0.035***	−0.034***	−0.035***	−0.034***	−0.035***	−0.033***
	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)	(0.005)
IDIV	0.128***	0.127***	0.132***	0.131***	0.127***	0.126***	0.126***	0.126***	0.141***	0.141***
	(0.015)	(0.014)	(0.014)	(0.014)	(0.015)	(0.014)	(0.015)	(0.014)	(0.015)	(0.015)
SIZE	0.021***	0.024***	0.028***	0.031***	0.019***	0.022***	0.018***	0.020***	0.010	0.013*
	(0.007)	(0.006)	(0.006)	(0.006)	(0.007)	(0.006)	(0.007)	(0.006)	(0.007)	(0.007)
ROA	1.142***	1.075***	1.177***	1.109***	1.135***	1.075***	1.121***	1.064***	1.133***	1.070***
	(0.217)	(0.211)	(0.215)	(0.209)	(0.217)	(0.212)	(0.218)	(0.212)	(0.221)	(0.215)
ETA	−0.186***	−0.175***	−0.191***	−0.180***	−0.185***	−0.175***	−0.182***	−.173***	−0.184***	−0.174***
	(0.036)	(0.035)	(0.036)	(0.035)	(0.036)	(0.035)	(0.036)	(0.035)	(0.037)	(0.036)
QGDPG	−0.006***	−0.016	−0.007***	−0.017	−0.006***	−0.014	−0.006***	−0.017	−0.006***	−0.018
	(0.002)	(0.022)	(0.002)	(0.022)	(0.002)	(0.022)	(0.002)	(0.022)	(0.002)	(0.022)
_cons	0.523***	0.477***	0.440***	0.393***	0.547***	0.493***	0.559***	0.521***	0.650***	0.614***
	(0.091)	(0.153)	(0.090)	(0.151)	(0.091)	(0.153)	(0.091)	(0.154)	(0.093)	(0.156)
Observations	3952	3952	3952	3952	3952	3952	3952	3952	3952	3952
	Non-Deposit-Taking MFIs
NPL	2.465	2.029	2.227	1.833	2.676	2.173	3.006	2.408	3.963	3.132
	(5.544)	(3.749)	(5.007)	(3.386)	(6.024)	(4.020)	(6.779)	(4.459)	(8.970)	(5.821)
IDIV	−0.822	−0.664	−0.721	−0.578	−0.919	−0.735	−1.055	−0.834	−1.439	−1.128
	(2.215)	(1.519)	(2.000)	(1.372)	(2.406)	(1.629)	(2.708)	(1.807)	(3.583)	(2.359)
SIZE	−0.096	−0.090	−0.086	−0.080	−0.103	−0.095	−0.118	−0.108	−0.154	−0.138
	(0.204)	(0.155)	(0.184)	(0.140)	(0.221)	(0.167)	(0.249)	(0.185)	(0.329)	(0.241)
ROA	−0.068	−0.054	−0.059	−0.047	−0.076	−0.060	−0.089	−0.070	−0.126	−0.099
	(0.226)	(0.162)	(0.204)	(0.146)	(0.246)	(0.174)	(0.276)	(0.193)	(0.366)	(0.251)
ETA	2.657	2.195	2.407	1.989	2.880	2.348	3.229	2.596	4.240	3.359
	(5.864)	(3.963)	(5.296)	(3.579)	(6.371)	(4.248)	(7.169)	(4.712)	(9.486)	(6.152)
QGDPG	0.047	−0.087	0.042	−0.081	0.051	−0.092	0.058	−0.091	0.076	−0.125
	(0.105)	(0.229)	(0.095)	(0.206)	(0.115)	(0.245)	(0.129)	(0.272)	(0.171)	(0.355)
_cons	0.648	1.338	0.658	1.286	0.616	1.349	0.621	1.380	0.528	1.546
	(1.211)	(1.388)	(1.094)	(1.254)	(1.316)	(1.488)	(1.481)	(1.651)	(1.959)	(2.155)
Observations	768	768	768	768	768	768	768	768	768	768

Note – Where outcome variable is the voluntary capital buffer (CAB), NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, ROA represents return on asset, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10%, respectively.

Source: Authors’ computation in STATA18

Table 10. Voluntary capital buffer by deposit-taking and non-deposit-taking MFIs (LOTA model)

	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)
	Bank of Ghana Rate		Basel II Minimum		Minimum III		Basel II Maximum		Basel III Maximum
Variable	10%	10%	8%	8%	10.5%	10.5%	11%	11%	13%	13%
	Deposit Taking MFIs
NPL	−0.022***	−0.022***	−0.021***	−0.020***	−0.023***	−0.022***	−0.023***	−0.023***	−0.025***	−0.024***
	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.006)	(0.007)	(0.007)
IDIV	0.102***	0.103***	0.102***	0.103***	0.103***	0.103***	0.104***	0.105***	0.123***	0.124***
	(0.015)	(0.016)	(0.015)	(0.015)	(0.016)	(0.016)	(0.016)	(0.016)	(0.017)	(0.017)
SIZE	0.014*	0.016**	0.019***	0.021***	0.012*	0.014*	0.012	0.014*	0.005	0.008
	(0.007)	(0.007)	(0.007)	(0.007)	(0.007)	(0.007)	(0.007)	(0.008)	(0.007)	(0.008)
LOTA	0.046	0.046	0.079	0.075	0.039	0.040	0.025	0.027	−0.008	−0.005
	(0.090)	(0.092)	(0.086)	(0.088)	(0.091)	(0.093)	(0.093)	(0.094)	(0.097)	(0.098)
ETA	0.020	0.020	0.040	0.038	0.016	0.017	0.007	0.009	−0.013	−0.011
	(0.053)	(0.055)	(0.051)	(0.052)	(0.054)	(0.055)	(0.055)	(0.056)	(0.057)	(0.058)
QGDPG	−0.005***	−0.010	−0.005***	−0.010	−0.005***	−0.008	−0.005***	−0.011	−0.005***	−0.013
	(0.002)	(0.017)	(0.001)	(0.016)	(0.002)	(0.017)	(0.002)	(0.017)	(0.002)	(0.018)
_cons	0.56***	0.503***	0.483***	0.430***	0.583***	0.517***	0.591***	0.541***	0.677***	0.623***
	(0.072)	(0.123)	(0.069)	(0.118)	(0.072)	(0.124)	(0.074)	(0.126)	(0.077)	(0.131)
Observations	3952	3952	3952	3952	3952	3952	3952	3952	3952	3952
	Non-Deposit-Taking MFIs
NPL	2.023	1.733	1.827	1.565	2.197	1.857	2.468	2.057	3.254	2.675
	(3.734)	(2.734)	(3.371)	(2.468)	(4.059)	(2.931)	(4.566)	(3.250)	(6.043)	(4.242)
IDIV	−0.640	−0.539	−0.556	−0.464	−0.722	−0.601	−0.833	−0.685	−1.147	−0.934
	(1.484)	(1.102)	(1.340)	(0.995)	(1.613)	(1.181)	(1.815)	(1.310)	(2.402)	(1.709)
SIZE	−0.087	−0.084	−0.078	−0.075	−0.094	−0.088	−0.108	−0.101	−0.141	−0.129
	(0.153)	(0.124)	(0.138)	(0.112)	(0.166)	(0.133)	(0.187)	(0.148)	(0.247)	(0.193)
LOTA	0.003	0.003	0.002	0.002	0.004	0.003	0.005	0.004	0.008	0.007
	(0.020)	(0.017)	(0.018)	(0.015)	(0.022)	(0.018)	(0.024)	(0.020)	(0.032)	(0.026)
ETA	2.190	1.883	1.984	1.706	2.374	2.013	2.660	2.224	3.489	2.875
	(3.946)	(2.887)	(3.562)	(2.607)	(4.289)	(3.095)	(4.826)	(3.432)	(6.387)	(4.479)
QGDPG	0.039	−0.078	0.034	−0.073	0.042	−0.082	0.048	−0.080	0.062	−0.111
	(0.071)	(0.187)	(0.064)	(0.169)	(0.078)	(0.201)	(0.087)	(0.223)	(0.116)	(0.291)
_cons	0.794	1.379	0.791	1.323	0.775	1.393	0.799	1.430	0.764	1.612
	(0.870)	(1.207)	(0.786)	(1.089)	(0.946)	(1.294)	(1.064)	(1.434)	(1.408)	(1.872)
Observations	768	768	768	768	768	768	768	768	768	768

Note – Where outcome variable is the voluntary capital buffer (CAB), NPL represents non-performing loans to total loans, IDIV represents income diversification, SIZE represents the natural logarithm of total assets, LOTA represents loans to total assets, ETA represents equity to assets, and QGDPG represents quarterly GDP growth. Also, the Standard errors are in parenthesis, while “***”, “**” and “*” represent significant levels at 1%, 5% and 10%, respectively.

Source: Authors’ computation in STATA18

Bank of Ghana. (2022). Annual report and financial statements 2021. Bank of Ghana. https://www.bog.gov.gh/wp-content/uploads/2022/06/AnnRep-2021.pdf

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Data availability statement

Data is available upon reasonable request.