Performance of Microfinance Providers in Sindh, Pakistan: A Study of Formal and Informal Microfinance Institutes

Download

Volume 16 Issue 1 2020

Author(s):

Ghazala Tunio
University of Sindh.
ghazala.tunio@faculty.muet.edu.pk

Ahmed Shafique Joyo
Shaheed Benazir Bhutto University.

Zhang Lei
University of Finance and Economics Nanjing.

Nizamuddin Channa
University of Sindh.

Noor Ahmed
University of Sindh.

Abstract This research aims to analyze the performance of microfinance providers of the Sindh province of Pakistan. For this purpose, the formal and informal microfinance institutes were selected. Data was gathered from a sample of 150 managers of microfinance banks and institutions. In this research, the random sampling technique is used to collect the data through questionnaires. The OLS regression model is employed to analyze the data. The results of this study show that the number of branches and fewer defaulters significantly affect the performance of microfinance institutes in Sindh, Pakistan. Moreover, the total cost also has an important relationship with the performance of microfinance organizations in Sindh. However, the study finds the interest rate, and more diversified financial services to have no significant impact on the performance of microfinance organizations. Due to the lack of financial information of the microfinance institutions in Sindh, there is a dearth of research on the performance of microfinance institutions. Rather than using only the published financial information, this study relies on the information provided by the managers of the microfinance providers for the analysis. The results of this study have implications for the well-functioning of microfinance institutes, and for the government to achieve the poverty alleviation objectives in Pakistan.
Keywords Microfinance institutes, Firm’s Performance, Sindh, Pakistan, Poverty
Year 2020
Volume 16
Issue 1
Type Research paper, manuscript, article
Recognized by Higher Education Commission of Pakistan, HEC
Category "Y"
Journal Name IBT Journal of Business Studies
Publisher Name ILMA University
Jel Classification H11, E42, G18, G28, G38
DOI http://dx.doi.org/10.46745/ilma.jbs.2020.16.01.11
ISSN no (E, Electronic) 2409-6520
ISSN no (P, Print) 2416-8393
Country Pakistan
City Karachi
Institution Type University
Journal Type Open Access
Type of Review Double Blind Peer Reviewed
Format PDF
Paper Link http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/16.1/11.pdf
Page 151-170
References Ahmad, S. N. (2008). Microfinance in Pakistan: policies and practice. (Masters thesis), University of Twente. Retrieved from http://essay.utwente.nl/59295/1/ scriptie_S_Ahmad.pdf

Alemu, A. M. (2012). Factors Influencing Consumers’ Financial Transactions in Islamic Banks Compared with Conventional Banks: Empirical Evidence from Selected Middle-East Countries with a Dual Banking System. African and Asian Studies, 11(4), 444-465.

Ali Basharat, M. H., and Saba Abbas. (2016). Annual assessment of the microfinance industry: Pakistan micro finance review (2016). Retrieved 20-8-2020, from https://pmn.org.pk/wp-content/uploads/2020/03/pmr2016.pdf.

Allison, P. D. (1999). Multiple regression: A primer: Pine Forge Press.

Anand, S., & Chhikara, K. S. (2013). A theoretical and quantitative analysis of financial inclusion and economic growth. Management and Labour Studies, 38(1-2), 103-133.

Anduanbessa, T. (2009). Statistical analysis of the performance of microfinance institutions: The Ethiopian case. Savings and Development, 183-198.

Ashraf, A., Kabir Hassan, M., & William, J. H. I. (2014). Performance of microfinance institutions in Muslim countries. Humanomics, 30(2), 162-182. doi: 10.1108/H-11-2013-0073.

Asian Development Bank. (2019). Poverty in Pakistan | Asian Development Bank.

Aveh, F. K. (2011). An evaluation of the performance of microfinance institutions in Ghana. An investigation institutions into the factors that impact on sustainability and success of microfinance in Sub-Saharan Africa. (Doctoral dissertation), University of Bradford. Retrieved from http://hdl.handle.net/10454/5164.

Barry, T. A., & Tacneng, R. (2014). The Impact of Governance and Institutional Quality on MFI Outreach and Financial Performance in Sub-Saharan Africa. World Development, 58, 1-20. doi: https://doi.org/10.1016/j. worlddev.2013.12.006.

Bichanga, W., & Aseyo, L. (2013). Causes of loan default within micro finance institutions in Kenya. Interdisciplinary Journal of Contemporary Research in Business, 4(12), 316-335.

Bruett, T., Barres, I., Curran, L., Escalona, A., Nelson, E. P., Norell, D., & Stephens, M. (2005). Measuring performance of microfinance institutions. Washington: SEEP Network.

Chou, C.-P., & Bentler, P. M. (1995). Estimates and tests in structural equation modeling Structural equation modeling: Concepts, issues, and applications. (pp. 37-55). Thousand Oaks, CA, US: Sage Publications, Inc.

Diamantopoulos, A., & Siguaw, J. A. (2006). Formative versus reflective indicators in organizational measure development: Acomparison and empirical illustration. British Journal of Management, 17(4), 263-282.

Dumont, G., & Schmit, M. (2014). What Does MFIs’ Cash Flow Analysis Reveal? Microfinance Institutions (pp. 31-52): Springer.

Gonzalez, A. (2007). Efficiency drivers of microfinance institutions (MFIs): The case of operating costs. Microbanking bulletin 15 The MIX, Washington, DC.

Hair, J. F., Black, W. C., Babin, B. J., Anderson, R. E., & Tatham, R. L. (1998). Multivariate data analysis (6 ed.): Prentice hall Upper Saddle River, NJ.

Hair, J. F., Sarstedt, M., Ringle, C. M., & Mena, J. A. (2012). An assessment of the use of partial least squares structural equation modeling in marketing research. Journal of the academy of marketing science, 40(3), 414-433.

Janda, K., & Turbat, B. (2013). Econometric analysis of profitability of microfinance institutions in selected Asian countries.

Joyo, A. S., & Lefen, L. (2019). Stock Market Integration of Pakistan with Its Trading Partners: A Multivariate DCC-GARCH Model Approach. Sustainability, 11(2), 303.

Kar, A., & Bali Swain, R. (2014). Interest Rates and Financial Performance of Microfinance Institutions: Recent Global Evidence. European Journal of Development Research, 26. doi: 10.1057/ej2013.33.

Khan, A. A., Haider, H., & Asad, M. (2011). Impact Assessment of Microfinance. A case study of Akhuwat. Available from Faculty of Commerce, University of Central Punjab Retrieved 20-08-2020 http://www.akhuwat.org.pk/wp-content/ uploads/2019/08/Impact-Assessment-of-AKHUWAT-2010.pdf.

Lai, F., Hutchinson, J., Li, D., & Bai, C. (2007). An empirical assessment and application of SERVQUAL in mainland China’s mobile communications industry. International Journal of Quality & Reliability Management, 24(3), 244-262.

Ling, G. M., Fern, Y. S., Boon, L. K., & Huat, T. S. (2015). Understanding Customer Satisfaction of Internet Banking: A Case Study In Malacca. Fifth International Conference on Marketing and Retailing (5th INCOMaR) 2015, 37, 80-85. doi: 10.1016/S2212-5671(16)30096-X.

Mia, M. A., & Rana, M. S. (2018). What affects portfolio yield of microfinance institutions? Evidence from Bangladesh.African Journal of Science, Technology, Innovation and Development, 1-9. doi: 10.1080/20421338.2018.1463652.

Mohd, S. (2018). A Study on the Performance of Microfinance Institutions in India. International Academic Journal of Accounting and Financial Management, 5(4), 116-128.

Mohsin, S., Bashir, M., & Tariq, D. Y. (2019). Outreach and Performance Analysis of Microfinance Banks in Pakistan. Business & Economic Review, 10. doi: 10.22547/BER/10.3.2.

Moll, H. A., & van Tilburg, A. (2006). Rural microfinance between clients and financial markets: Wageningen University.

Moll, H. A., & van Tilburg, A. (2010). Rural microfinance between clients and financial markets.

Nakayiza, K. S. (2013). Interest rates and loan portfolio performance in commercial banks: a case study of centenary bank Entebbe Road Branch (Uganda). Unpublished Master’s Programme Thesis in in International Business Management.

Naser, K., Jamal, A., & Al Khatib, K. (1999). Islamic banking: a study of customer satisfaction and preferences in Jordan. International Journal of Bank Marketing, 17(3), 135-151. doi: 10.1108/02652329910269275

Nitin Agarwal. (2006). Costing of MFIs Retrieved (20-08-2020), from http://www.spandanaindia.com/.

O’sullivan, D., & Abela, A. V. (2007). Marketing performance measurement ability and firm performance. Journal of marketing, 71(2), 79-93.

Ozili, P. K. (2018). Impact of digital finance on financial inclusion and stability. Borsa Istanbul Review, 18(4), 329-340.

Pallant, J. (2005). SPSS survival manual: A step guide to data analysis using SPSS for Windows version 12: Chicago, Illinois: Open University Press.

Pallant, J. (2013). SPSS survival manual: A Step by Step Guide to Data Analysis Using IBM SPSS (5 ed.): McGraw-Hill Education (UK).

Pandey, S., & Bright, C. L. (2008). What are degrees of freedom? Social Work Research, 32(2), 119-128.

Prakash, S., & Malhotra, K. (2017). Microfinance-A Comprehensive Review of Literature. Indian Journal of Economics & Business, 16(1), 121-133.

Rafeeq, A. (2018). Determinants of Financial Inclusion in High Income and Low Income Countries. (Masters Thesis), Capital University of Science and Technology, Islamabad. Retrieved from https://thesis.cust.edu.pk/ UploadedFiles/asif_6.pdf.

Rashid Amber, G., & Ejaz, L. (2019). Interest free micro credit loans: Pakistani female entrepreneurs. Journal of Islamic Marketing, 10(3), 860-873. doi: 10.1108/JIMA-04-2018-0071

Rauf, S. A., & Mahmood, T. (2009). Growth and performance of microfinance in Pakistan. Pakistan economic and social review, 99-122.

Riaz, M. (2016). Efficiency in social performance management of microfinance institutions: A case of Pakistan. (Ph.D.), Universiti Sains Malaysia. Retrieved from http://eprints.usm.my/31619/1/Madiha_Riaz.pdf

Riaz, M., & Qasim, M. (2016). Islamic Microfinance institution: The capital structure, growth, performance and value of the firm in Pakistan. Journal of ISOSS, 2(1), 97-101.

Saunders, A., & Schumacher, L. (2000). The determinants of bank interest rate margins: an international study. Journal of international Money and Finance, 19(6), 813-832.

Shkodra, J. (2019). Financial performance of microfinance institutions in Kosovo. Journal of International Studies, 12, 31-37. doi: 10.14254/2071-8330.2019/12- 3/3.

Sinha, M., Mahapatra, S. S., Dutta, A., & Sengupta, P. P. (2019). Microfinance and Women Empowerment: An Empirical Analysis Handbook of Research on Microfinancial Impacts on Women Empowerment, Poverty, and Inequality (pp. 52-64): IGI Global.

Tabachnick, B. G., & Fidell, L. S. (2007). Using multivariate statistics, 5th ed. Boston, MA: Allyn & Bacon/Pearson Education.

Taj, F., Rashid, K., & Tariq, D. Y. (2019). Role of Managerial Competencies and Risk-Taking Behavior in Financial Service Outreach of Microfinance Banks in Pakistan. 15, 25-42.

Tchuigoua, H. T. (2014). Performance of microfinance institutions: do board activity and governance ratings matter? Finance, 35(3), 7-52.

Vanroose, A., & D’Espallier, B. (2009). Microfinance and financial sector development. Centre Emile Bernheim. Research Institute in Management Sciences: CEB Working Paper, 9, 040.

Weisburd, D., & Britt, C. (2014). Statistics in criminal justice: Springer.

World Bank. (2012). Information and Communications for Development 2012: Maximizing mobile (Publication no. 10.1596/978-0-8213-8991-1). https:// elibrary.worldbank.org

Wu, M. L. (2009). Structural equation modeling: Amos operation and application: Chongqing University press, China.

Yaron, J., Benjamin, M. D. P., & Piprek, G. L. (1997). Rural Finance: Issues, Design, and Best Practices. World Bank :Washigton, DC.

Yousfani, K., Aslam, Y., Mahar, Q., & Kazi, H. (2019). The Impact of Microfinance on Growth of Women Entrepreneurship in Pakistan. Journal of Entrepreneurship, Business and Economics, 7(1), 133-152.

Yusuf, M.-B. O., Shirazi, N. S., & MatGhani, G. (2013). The impact of Pakistan Poverty Alleviation Fund on Poverty in Pakistan: an emperical analysis. Middle-East Journal of Scientific Research, 13(10), 1335-1344.