Comparative Study of Microfinance Sustainability: Credit Risk-Taking and Capital Structure
International Journal of Management, Economics and Social Sciences
2023, Vol. 12(3), pp. 184 – 216.
ISSN 2304 – 1366
DOI: 10.32327/IJMESS/12.3.2023.8


Comparative Study of Microfinance Sustainability: Credit Risk-Taking and Capital Structure


Marwa Fersi1
Mouna Boujelbène1
1Faculty of Economics and Management of Sfax, University of Sfax, Sfax, Tunisia



The purpose of this paper was to investigate the determinants of risk-taking in the context of Islamic and conventional microfinance institutions (MFIs) while considering the capital structure’s role in moderating the risk-taking decisions’ effect on financial performance. Fixed and Random effects GLS with a first-order autoregressive disturbance was used to empirically analyze the impact of risk-taking on performance as well as the role of capital structure in moderating the effects on the relationship between non-performing loans and performance. The dataset covers 179 Conventional MFIs and 57 Islamic MFIs in four different regions over the 2005-2015 period. Risk-taking determinants exposed by high loan growth, low-interest margin, and low loan loss provisions were revealed to have negative consequences on risk exposures for both MFIs on average. These indicators are significantly and positively related to a lower loan portfolio quality. Therefore, this risk-taking behavior harms these MFIs’ performance. The moderating effect of capital structure within leverage funding on the relationship between non-performing loan indicators and financial performance was confirmed in Conventional microfinance institutions. This paper can be considered a pioneer attempt to evaluate the determinants of risk-taking decisions and their implications on the financial performance and sustainability of microfinance institutions.

Keywords: Credit risk taking, capital structure, non-performing loans, performance, microfinance institutions
JEL: G21, G23, G41