Impact of Geographical Diversification on Credit Risk of Microfinance Organizations in Armenia

Aram Mkhitaryan
Additional contact information
Aram Mkhitaryan: European University, Yerevan, Armenia

HSE Economic Journal, 2023, vol. 27, issue 1, 103–121

Abstract: This paper analyzes the existence of relationship between credit risk and the geographical diversification of financial institutions, originating from emerging countries. Due to economic unstable situation in the world caused by Covid-19, credit portfolios of banks and MFIs caused negatively which in some situations can lead to default. In the current situation, it became necessary to discover new approaches to credit risk management and new researches to be done. For this purpose, financial indicators of MFIs operating in Armenia were evaluated and Pearson analysis of MFIs data, risks & profitability efficiency calculation was made to take out impact of diversification of MFIs on credit risk reduction. Both international literature and practical data of MFIs operating in Armenia were identified. Another research was made for taking out the number of branches and credit risk correlation. Our findings show that geographic diversification is statistically significant with the expansion of gross loans. In contrast, empirical results suggest that the geographical diversification of MFIs does not have a significant correlation with the size of the credit risk reserve, which means that the representation of MFIs in different regions in the form of branches will not always lead to credit risk reduction, and in some cases may lead to operational risks and additional costs. We adopt cost funding and assets size variables impact assessment evaluation through instrumental variables method. Our results confirm the endogenous nature of those variables with risk level of MFIs.

Keywords: microfinance; credit risk; microloan; risk; efficiency; diversification (search for similar items in EconPapers)
JEL-codes: G21 G24 G34 G38 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ej.hse.ru/en/2023-27-1/819344973.html (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hig:ecohse:2023:1:5

Access Statistics for this article

More articles in HSE Economic Journal from National Research University Higher School of Economics
Bibliographic data for series maintained by Editorial board () and Editorial board ().