Browsing by Author "Bayai, Innocent"

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    Financing structure and financial sustainability: evidence from selected Southern Africa development community microfinance institutions
    (Stellenbosch : Stellenbosch University, 2017-03) Bayai, Innocent; Ikhide, Sylvanus; Stellenbosch University. Faculty of Economic and Management Sciences. University of Stellenbosch Business School.
    ENGLISH SUMMARY : Despite the burgeoning interest in microfinance, research has shied away from addressing the relationship between financing structure and the financial sustainability of microfinance institutions (MFIs) as evidence on the same remains sparse. Considering the commercialisation trend, this thesis closes this gap by examining the relationship between the financing structure and financial sustainability for selected Southern Africa Development Community (SADC) MFIs. The effort was informed by the need to have financially sustainable MFIs that can consistently provide financial services to the marginalised, and hence advance outreach in the poverty–stricken region. The thesis comprises a blend of four research papers that address: (1) a conceptual review of ‘financial sustainability’ as applied in microfinance, (2) the essence of the life cycle theory (LCT) in explaining financial sustainability, (3) financing structure and financial sustainability, as well as (4) the relationship between the financing structure and outreach (depth and breadth). Assuming panel data on 60 selected MFIs drawn from the MIX over a period of six years, the study applies robust panel framework (fixed and random effects models) as well as binary–outcome models (probit and logit models). The results show that MFI age alone cannot explain the level of financial sustainability. Rather, the ability to manage default risk by reducing the portfolio at risk as well as embracing cost–efficiency by minimising both operational and financing costs improves chances of financial sustainability. Generally, MFIs are not financially sustainable — supporting evidence from earlier studies. ‘Young’ MFIs emerge more financially sustainable signifying a new trend variant from the propositions of the LCT. Further evidence reveals that financial sustainability is sensitive to the financing sources employed by MFIs as well as the number of active borrowers. Regulatory costs also limit the role of deposits in spurring financial sustainability. Moreover, results demonstrate that outreach depth is significantly constrained by debt financing; whilst equity, deposits and ‘new’ MFIs have a significant positive effect on outeach depth. Outreach breadth is promoted by deposits only; whilst equity, debt and ‘new’ MFIs limit it. The study suggests the adoption of proper credit risk analysis done through credit bureaus and client screening technology to reduce adverse selection and moral hazard. In addition, a strong loan recovery strategy can also limit outstanding loans. Embracing cost–efficiency through the use technology such as mobile banking and cost–cutting innovation in lending may reduce the operating costs for MFIs. Also, financing costs incurred through the use of costly borrowings can be controlled by reducing borrowings, thereby improve chances of attaining financial sustainability. The removal of controls on lending rates and the promotion of efficient financial markets through appropriate regulatory framework go a long way in reducing the cost of borrowing, allow for the raising of equity capital as well as stimulating financial sustainability. Regulation that promotes competition; reduce regulatory costs and allow for the establishment of ancillary financial infrastructure (credit bureaus) helps in improving transparency in the microfinance sector.