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Credit Risk in African Microfinance Institutions: Correlates and International Comparisons

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

No 2018-09, School of Economics Macroeconomic Discussion Paper Series from School of Economics, University of Cape Town

Abstract: Credit risk in African microfinance institutions seems to be rising, and the financial health of these institutions is becoming an issue of concern. Given this trend, this study seeks to unravel the factors that explain variations in credit risk in sub-Sahara African MFIsand, if such factors exist, to establish whether they have the same effects on credit risk in other developing regions. The study approach accommodates dynamic panel bias by applying system generalised method of moments estimators. Results suggest that the main predictors of credit risk in sub-Saharan Africa are lagged credit risk, loan growth, provision for loan impairment, GDP per capita growth and ease of getting credit. In addition, the study identifies threshold effects in the relationship between credit risk and loan growth. Credit risk falls with loan growth until a trough at 36.8% when this relationship is reversed.Further results from regional comparisons suggest that credit risk is most persistent in East Asia and the Pacific but least persistent in Sub-Saharan Africa.

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