Determinants of Loans’ Growth in Microfinance Institutions: The Case of Sub-Saharan Africa and Comparisons with other Regions of the World

Eliud Moyi and Eftychia Nikolaidou
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Eliud Moyi: School of Economics, University of Cape Town

No 2018-05, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: The purpose of this study is to identify factors that explain variations in loan growth in sub-Saharan African microfinance institutions and, if such factors exist, to investigate whether they predict loan growth differences in other regions.To address these objectives, the study merges data from 745 microfinance institutions with macro-institutional data from 37 countriesin Sub-Saharan Africa. The data is corrected for dynamic panel bias by applying a modelling strategy that accommodates endogeneity through the two-step system generalised method of moments estimators. The results show that loan growth is higher in microfinance institutions that are facing lower risk exposure, those that are having higher capital asset ratios and among those that are already having high loan growth. Furthermore, results indicate that loan growth is higher in countries with better economic prospects, and in those with sound private sector policies and regulations. Against expectations, loan growth is faster in countries with poor legal rights of borrowers and lenders. Results also suggest that variables that enter the Sub-Saharan Africa regressions significantly do not enter the regressions for the other regions with the same effect.These results point to the need for interventions that mainstream regional and even country-level heterogeneity.

Date: 2018
New Economics Papers: this item is included in nep-afr, nep-dev and nep-mfd
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