Optimal sources of financing for microfinance institutions in sub-Saharan Africa

ABSTRACT

This article studies the relationship between different sources of finance and the financial performance of microfinance institutions in 36 sub-Saharan African countries. The analysis is based on a panel dataset of 471 microfinance institutions over the period 1995 to 2012. By applying the GMM estimator, the results suggest that first, there is a positive and robustly significant relationship between equity and the financial performance of microfinance institutions; and second, debt and microsavings negatively affect the financial performance of microfinance institutions in the sub-Saharan African region. Therefore, the optimal source of finance for microfinance institutions in sub-Saharan Africa is equity. More importantly, the policy recommendation is that private or public partners must support MFIs financially; doing so could contribute to extending financial services to the poor in sub-Saharan Africa.

KEYWORDS:

• Labour and livelihoods - Microfinance, Economics
• Sub-Saharan Africa

Acknowledgements

The author would like to thank Prof. Daniel Makina, Prof. Ven Tauringana, Prof. Phillip de Jager, Prof. George Filis, the editor and the two anonymous reviewers for their useful comments and suggestions that helped improve this paper. The usual caveats apply.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes on contributor

Sydney Chikalipah is a member of the Department of Finance and Tax, University of Cape Town, RSA. Part of the research outlined here was conducted when he was a member of the Bournemouth University Business School, Bournemouth, UK.

ORCID

Sydney Chikalipah http://orcid.org/0000-0002-1399-3641