Paper
The Impact of Public Spending on the Performance of Microfinance Institutions
Examining the impact of public expenditures and governments’ debt on the microfinance sector
23 pages
This paper investigates the role of rising public expenditures and growing debt of local governments on the microfinance sector, in the context of macroeconomic development. It studies the role of these factors on the total size of the microfinance market, the number of debtors, risk operations, and profitability of MFIs. The paper bases its analysis on empirical data gathered from 302 MFIs operating in 12 countries in Latin American and the Caribbean (LAC) between 2006 and 2012. It adopts a panel regression model and confirms the high significance of public finance for the growth of MFIs, especially for the size of their total assets and for their yield on gross loan portfolio in LAC. Key findings include:
- Public expenditures have positive impact on the development of microfinance sector in the Latin America region. Precisely, the sample of MFIs show a growing volume of total assets and real yield of gross loan portfolio;
- States with higher growth of GDP are characterized by higher rate of social efficiency;
- Positive influence on microfinance is also associated with growth of rural population or economy openness of the given country.
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