CREDIT RISK, LIQUIDITY RISK AND FEEDBACK EFFECTS ON MICROFINANCE INSTITUTIONS: AN EMPIRICAL EVIDENCE IN ECUADOR

Adriana Uquillas () and Belen Simbaã‘a ()
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Adriana Uquillas: Escuela Politécnica Nacional, Facultad de Ciencias, Ecuador
Belen Simbaã‘a: Escuela Politécnica Nacional, Ecuador

Journal of Developmental Entrepreneurship (JDE), 2022, vol. 27, issue 04, 1-31

Abstract: Ten years of data from an Ecuadorian microfinance entity together with data on macroeconomic variables was analyzed. Through a Vector Autoregressive Model, we established a one-way causal relationship between credit and liquidity risks. The model includes the feedback effects through successive deterioration of credit portfolio and illiquidity spreading and the effects of macroeconomics and financial variables on these risks. Our results corroborate the importance of incorporating new contagion channels in microfinance institutions’ risk management, which helps microfinance institutions become financially sustainable, generating a relatively stable level of profitability that can improve the entrepreneur’s economic situation.

Keywords: Contagion channels; credit risk; credit portfolio; liquidity risk; microfinance (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:jdexxx:v:27:y:2022:i:04:n:s108494672250025x

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DOI: 10.1142/S108494672250025X

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