Optimizing capital allocation in microfinance projects: an experimental case study in Barranquilla, Colombia

Mario Alberto de la Puente Pacheco, Elkyn Lugo Arias and Jose Torres

Cogent Economics & Finance, 2024, vol. 12, issue 1, 2391937

Abstract: This research examines the development and evaluation of an optimization framework for the strategic deployment of financial resources in microfinance initiatives in Barranquilla, Colombia. The framework incorporates an array of variables, including market dynamics, institutional elements, project attributes, and firm-specific factors, to optimize project outcomes and long-term viability. With approximately 3,500 microfinance projects currently operating in the country, Colombia has a thriving microfinance sector that plays a crucial role in promoting financial inclusion and economic development. To ensure a representative sample for this study, 21 microfinance projects were selected using stratified sampling based on key characteristics such as sector, size, and years of operation. The optimization framework developed in this study incorporates an array of variables, including market dynamics, institutional elements, project attributes, and firm-specific factors, to optimize project outcomes and long-term viability. Comprehensive statistical techniques, such as factor analysis, principal component analysis, ANOVA, and t-tests, demonstrate substantial enhancements in critical performance indicators when the optimization framework is implemented. The experimental group, employing the framework, displays superior investment returns, reduced loan defaults, expanded beneficiary reach, and amplified employment generation compared to the control group utilizing conventional allocation strategies. These outcomes corroborate prior studies emphasizing the merits of data-driven methodologies for financial resource allocation in microfinance. The research contributes to the comprehension of effective capital deployment in microfinance initiatives and offers institutions a practical instrument to boost performance, attain financial sustainability, and support poverty reduction and economic growth. The findings have implications for microfinance organizations, policymakers, and academics, underscoring the significance of incorporating a comprehensive set of variables and integrating social capital considerations into microfinance approaches. Subsequent research can expand upon these discoveries to further investigate the efficiency of capital allocation and develop innovative strategies to strengthen microfinance programs.This study demonstrates the significant impact of an innovative optimization model on improving the performance of microfinance projects in Barranquilla, Colombia. Microfinance projects utilizing the optimization framework showed higher returns on investment, lower default rates, increased beneficiary outreach, and greater job creation compared to those using traditional allocation methods. These findings underscore the potential of data-driven approaches to optimize resource allocation in microfinance, offering a valuable tool for practitioners to enhance both financial sustainability and social impact. The study's results have important implications for policymakers and microfinance institutions, highlighting the need for supportive environments that facilitate the adoption of such optimization models. This research contributes to the growing body of evidence on effective strategies for enhancing microfinance performance, with potential applications beyond Colombia to other developing countries facing similar challenges in financial inclusion and poverty alleviation.

Date: 2024
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DOI: 10.1080/23322039.2024.2391937

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