ASSESSING CASH FLOW RISK IN MICROFINANCE INSTITUTIONS: A BOTTOM-UP APPROACH AND MONTE CARLO SIMULATION

Xianghua Tang ()
Additional contact information
Xianghua Tang: School of Business, Huaihua University, Hunan 418000, China

Journal of Developmental Entrepreneurship (JDE), 2024, vol. 29, issue 02, 1-18

Abstract: Microfinance institutions (MFIs) play a crucial role in the emerging financial system as well as in the innovation of rural financial systems. MFIs significantly promote capital flow, alleviate financing difficulties for small and micro enterprises, and address poverty in underserved areas. However, the demands to address poverty through development and meet social goals expose MFIs to financial risks, particularly cash flow risk associated with capital repayment, which can hinder normal operations. Therefore, it is essential to systematically study the cash flow risk faced by MFIs to enhance their sustainable development capabilities. This research utilizes the bottom-up approach along with Monte Carlo simulation (MCS) to compute the value at risk (VaR), assessing the financial flow of listed microfinance firms in China. The analysis provides a straightforward and specific measure of cash flow uncertainty for management, investors and analysts of microfinance institutions. By comparing the VaR of corporate cash flow and evaluating the VaR of cash flow, the study identifies the existence of cash flow risks within the entire microfinance industry. The study provides policy recommendations to mitigate cash flow risk in microfinance institutions, focusing on business strategy and internal control, to improve the industry’s ability to manage risks and promote sustainable development.

Keywords: Microfinance; risk management; cash flow; cash flow at risk; monte-carlo (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S1084946724500092
Access to full text is restricted to subscribers

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:wsi:jdexxx:v:29:y:2024:i:02:n:s1084946724500092

Ordering information: This journal article can be ordered from

DOI: 10.1142/S1084946724500092

Access Statistics for this article

Journal of Developmental Entrepreneurship (JDE) is currently edited by Peter Koveos

More articles in Journal of Developmental Entrepreneurship (JDE) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().