Indian MFIs: The Funding Structure and Its Determinants

Ambika Pati

The IUP Journal of Bank Management, 2014, vol. XIII, issue 4, 63-83

Abstract: The decision regarding the funding structure of Microfinance Institutions (MFIs) is crucial. Considering the poor financial background of MFIs’ borrowers and the small loan size provided to them, the cost of capital to the lenders matters most. Keeping in view the recent structural and ownership changes of the Indian MFIs, an attempt has been made in this paper to understand the funding status and to find the important influential variables of the capital structure of MFIs. Though across the world the maturity profile, i.e., age, is found to be the important variable, which is explained through the life cycle theory, in a few other cases, the regulatory status of MFIs is also identified. The analysis of Indian MFIs reveals that neither regulatory status nor their maturity influences the capital structure; rather profitability has emerged as the significant variable. Considering this relationship and the importance of debt finance in the capital structure, it is suggested that rather than depending on institutional borrowings, the Indian MFIs need to scout for alternative, market-related, cheap debt sources.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjbm:v:13:y:2014:i:4:p:63-83

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