Geographic diversification and credit risk in microfinance

Stephen Zamore (), Leif Atle Beisland and Roy Mersland
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Roy Mersland: UIA - University of Agder

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Abstract: This paper examines the relation between geographic diversification and credit risk in microfinance. The empirical findings from the banking industry are mixed and inconclusive.This study extends the discussion into a new international setting: the global microfinance industry with lenders having both social and financial objectives. Using a large global sample of microfinance institutions (MFIs), we find that geographic diversification comes with more credit risks. However, this finding is more pronounced among non-shareholder MFIs like NGOs and cooperatives, compared to shareholder-owned MFIs. Moreover, the results show that MFIs can mitigate the effect of geographic diversification on risk with group lending methodology.

Keywords: G24; O16; L31; microfinance geographic diversification credit risk portfolio at risk loan-loss provisions nonperforming loans. JEL: G21 G23 G24 L31 O16; G23; nonperforming loans. JEL: G21; loan-loss provisions; portfolio at risk; credit risk; geographic diversification; microfinance (search for similar items in EconPapers)
Date: 2019
Note: View the original document on HAL open archive server: https://hal.science/hal-05221027v1
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Published in Journal of banking & finance = Journal of banking and finance, 2019, 109, pp.105665. ⟨10.1016/j.jbankfin.2019.105665⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05221027

DOI: 10.1016/j.jbankfin.2019.105665

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