Microfinance strategy and its impact on profitability and operating efficiency: evidence from Indonesia
-
Received February 10, 2017;Accepted March 30, 2017;Published June 2, 2017
- Author(s)
-
DOIhttp://dx.doi.org/10.21511/imfi.14(2).2017.05
-
Article InfoVolume 14 2017, Issue #2, pp. 51-62
- TO CITE АНОТАЦІЯ
-
Cited by1 articlesJournal title: Problems and Perspectives in ManagementArticle title: Positive contribution of the good corporate governance rating to stability and performance: evidence from IndonesiaDOI: 10.21511/ppm.16(2).2018.01Volume: 16 / Issue: 2 / First page: 1 / Year: 2018Contributors: RR. Iramani, Muazaroh Muazaroh, Abdul Mongid
- 1413 Views
-
2246 Downloads
This work is licensed under a
Creative Commons Attribution-NonCommercial 4.0 International License
After the Asian crisis in 1998, Indonesian banking transformed very quickly into more market-oriented banking. This development increased the competition, on the one hand, and pressure to perform better financially, especially after foreign investor taking over the ownership, on the other hand. Some banks transformed their business strategies into a microfinance bank for profit motives. Such strategy jointly results in significant profitability and efficiency. Using SUR regression, it is found that for the profitability equation, the profitability relates to the size of the bank, the loan loss reserve to gross loan (LLRGL), equity ratio (ETA) and fixed asset ratio (FIXASEQ). For operating efficiency (CIR), the result is similar and only the sign is different. Interestingly that for profitability, the microfinance strategy (MFS) is significant, but not for operating cost efficiency. It implies the need for more cost efficient commercial banks entering microfinance business as it will benefit small borrowers in terms of lower interest margin.
- Keywords
-
JEL Classification (Paper profile tab)G32
-
References35
-
Tables4
-
Figures0
-
- Table 1. Variable, measurement and expected result
- Table 2. Descriptive statistics
- Table 3. Correlation matrix
- Table 4. The SUR regression result
-
- Ahmed, I., Bhuiyan, A. B., Ibrahim, Y., Said, J., and Salleh, M. F. M. (2016). Social Accountability of Microfinance Institutions in South Asian Region. International Journal of Economics and Financial Issues, 6(3), 824-829.
- Al Atoom, R. O., and Abu Zerr, A. E. (2012). Macro and microfinancial factors that assures Jordanian Microfinance Institutions’ (MFIs) financial sustainability. European Journal of Economics, Finance and Administrative Sciences, 54, 146-160.
- Athanasoglou, P., Brissimis, S., and Delis, M. (2008). Bank-specific, industry specific and macroeconomic determinants of bank profitability. International Financial Markets Institutions and Money, 18(2), 121-136. http://dx.doi.org/10.1016/j. intfin.2006.07.001
- Ault, J. K., and Spicer, A. (2014). The institutional context of poverty: State fragility as a predictor of cross‐national variation in commercial microfinance lending. Strategic Management Journal, 35(12), 1818-1838.
- Bassem, B. (2009). Governance and performance of microfinance insti¬tutions in Mediterranean countries. Journal of Business Economics and Management, 10(1), 31-43.
- Baydas, M., Graham, D., & Valenzuela, L. (1997). Commercial Banks in Microfinance: New Actors in the Microfinance World, Microenterprise Best Practices Project. USAID. Bethesda, Maryland: Development Alternatives, Inc.
- Bounouala, R., and Rihane, C. (2014). Commercial banks in microfinance: entry strategies and keys of success. Journal of Investment Management and Financial Innovations, 11(1).
- Berger, A. N., and De Young, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking and Finance, 21(6), 849-870.
- Berger, A. N., and Di Patti, E. B. (2006). Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry. Journal of Banking & Finance, 30(4), 1065-1102.
- CGAP. (1998). Commercial Banks in Microfinance: New Actors in the Microfinance World. CGAP Focus, 12, July 1998.
- Dawood, U. (2014). Factors impacting profitability of commercial banks in Pakistan for the period of (2009-2012). International Journal of Scientific and Research Publications, 4(3), 1-7.
- Demirgüç-Kunt, A., and Huizinga, H. (1999). Determinants of commercial bank interest margins and profitability: some international evidence. The World Bank Economic Review, 13(2), 379-408.
- Demirgüç-Kunt, A., & Maksimovic, V. (1999). Institutions, financial markets, and firm debt maturity. Journal of financial economics, 54(3), 295-336.
- Dichter, T. W., and Harper, M. (Eds.). (2007). Whats wrong with microfinance? Practical Action Pub.
- Elaydi, R. and Harrison, C. (2010). Strategic motivations and choice in subsistence markets. Journal of Business Research, 63(6), 651-655. http://dx.doi.org/10.1016/ j.jbusres.2009.04.026.
- Gardener, E., Molyneux, P., and Nguyen-Linh, H. (2011). Determinants of efficiency in South East Asian banking. The Service Industries Journal, 31(16), 2693-2719.
- Greene, W. H. (2012). Econometric Analysis. 7th ed. Upper Saddle River, NJ: Prentice Hall.
- Hughes, J. P., & Mester, L. J. (2013). Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function. Journal of Financial Intermediation, 22(4), 559-585.
- Kasman, A., Tunc, G., Vadar, G. & Okan, B. (2010). Consolidation and Commerical Bank Net Interest Margins: Evidence from the old and new European Union Members and Candidate Countries. Journals of Economic Modelling, 27(3), 648-655.
- Karim, M. Z. A. (2001). Comparative Bank Efficiency across Select ASEAN countries. ASEAN Economic Bulletin, 18(3), 289-304.
- Lee, C. C., & Hsieh, M. F. (2013). The impact of bank capital on profitability and risk in Asian banking. Journal of international money and finance, 32, 251-281.
- Lee, C. C., & Hsieh, M. F. (2013). The impact of bank capital on profitability and risk in Asian banking. Journal of international money and finance, 32, 251-281.
- Lieberg, D., and Schwaiger, M. S. (2009). What Drives the Interest Rate Margin Decline in EU Banking – The Case of Small Local Banks. Kredit Und Kapital, 42(4), 509-538.
- Martinez, C. (2015). Doing Well by Doing Good? Empirical Evidence from Microfinance (No. CFDWP06-2015). Centre for Finance and Development, The Graduate Institute.
- McAllister, P. H. and McManus, D. (1993). Resolving the scale efficiency puzzle in banking. Journal of Banking & Finance, 17(2), 389-405.
- Mersland, R. and Strøm, R. O. (2010). Microfinance mission drift? World Development, 38(1), 28-36.
- Molyneux, P. and Thornton, J. (1992). Determinants of European bank profitability: A note. Journal of banking & Finance, 16(6), 1173- 1178.
- Shaban, M. A., Duygun, M. A., Anwar, M. B, Akbar, B. C. (2013). Diversification and banks’ willingness to lend to small businesses: Evidence from Islamic and conventional banks in Indonesia. Journal of Economic Behavior and Organization, 103, 39-55.
- Shahriar, A. Z. M., Schwarz, S., & Newman, A. (2015). Profit orientation of microfinance institutions and provision of financial capital to business start-ups. International Small Business Journal.
- Sufian, F., and Habibullah, M. S. (2009). Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh. Journal of business economics and management, 10(3), 207-217.
- Srairi, S. A. (2009). Factors influencing the profitability of conventional and Islamic commercial banks in GCC countries. Review of Islamic Economics, 13(1), 5-30.
- Tahir, I. M. Abdul and Haron, S. (2012). The Determinants of Bank Cost Inefficiency in ASEAN Banking. Jurnal Pengurusan, 36, 69-76.
- Tan, Y., and Floros, C. (2012). Bank profitability and inflation: the case of China. Journal of Economic Studies, 39(6), 675-696.
- Rosengard, J. K. (2004). Banking on social entrepreneurship: the commercialization of microfinance. Mondes en développement, 2(126), 25-36.
- Yunus, M. (2011). Building social business: The new kind of capitalism that serves humanity’s most pressing needs. PublicAffairs.
-
The moderating role of firm size and interest rate in capital structure of the firms: selected sample from sugar sector of Pakistan
Sarfraz Hussain , Abdul Quddus , Pham Phat Tien , Muhammad Rafiq , Drahomíra Pavelková doi: http://dx.doi.org/10.21511/imfi.17(4).2020.29Investment Management and Financial Innovations Volume 17, 2020 Issue #4 pp. 341-355 Views: 3461 Downloads: 372 TO CITE АНОТАЦІЯThe selection of financing is a top priority for businesses, particularly in short- and long-term investment decisions. Mixing debt and equity leads to decisions on the financial structure for businesses. This research analyzes the moderate position of company size and the interest rate in the capital structure over six years (2013–2018) for 29 listed Pakistani enterprises operating in the sugar market. This research employed static panel analysis and dynamic panel analysis on linear and nonlinear regression methods. The capital structure included debt to capital ratio, non-current liabilities, plus current liabilities to capital as a dependent variable. Independent variables were profitability, firm size, tangibility, Non-Debt Tax Shield, liquidity, and macroeconomic variables were exchange rates and interest rates. The investigation reported that profitability, firm size, and Non-Debt Tax Shield were significant and negative, while tangibility and interest rates significantly and positively affected debt to capital ratio. This means the sugar sector has greater financial leverage to manage the funding obligations for the better performance of firms. Therefore, the outcomes revealed that the moderators have an important influence on capital structure.
-
Service quality, customers’ satisfaction, and profitability: an empirical study of Saudi Arabian insurance sector
Investment Management and Financial Innovations Volume 15, 2018 Issue #2 pp. 232-247 Views: 3457 Downloads: 574 TO CITE АНОТАЦІЯFinancial performance is the fundamental aspect to test the performance of the companies. The performance of insurance sector, like any other service industry, is supposed to depend significantly on customers. When it comes to customers, it is an established fact that customer satisfaction would be an important element. Customer satisfaction primarily depends on the quality of service it gets. It can be safely hypothesized that better service quality would lead to higher satisfaction, which would ultimately lead to higher profits for the company. Studies on this relationship in the insurance sector for Saudi Arabia are missing. Hence, this study aims at studying both the profitability of companies and quality of service and tries to relate it to customer satisfaction. The results are quite surprising, as the study establishes that although the qualities of services are found wanting in many areas, companies are earning good profits. A probable reason could be the statutory nature of the services. Nevertheless, this study recommends improving the quality of services and differentiating services between age groups for further improvement.
-
The effect of working capital management on profitability: a case of listed manufacturing firms in South Africa
Jason Kasozi doi: http://dx.doi.org/10.21511/imfi.14(2-2).2017.05Investment Management and Financial Innovations Volume 14, 2017 Issue #2 (cont. 2) pp. 336-346 Views: 3204 Downloads: 2652 TO CITE АНОТАЦІЯWorking capital management plays a pivotal role in enhancing the operational efficiency of firms and their ultimate profitability. Therefore, the purpose of this study was to examine the trends in working capital management and its impact on the financial performance of listed manufacturing firms on the Johannesburg Securities Exchange (JSE). A panel data methodology was used with different regression estimators to analyze this relationship based on an unbalanced panel of 69 manufacturing firms listed during the period 2007–2016.
The findings revealed that the average collection period and the average payment period are negative and statistically significant for profitability, implying that firms which efficiently manage their accounts receivable and those that pay their creditors on time perform better than those that do not. Additionally, a positive statistically significant relationship between the number of days in inventory and profitability was supported suggesting that firms which stock-up and maintain their inventory levels suffer less from stock-outs and avoid challenges of securing financing when needed. This increases their operational efficiency and ensures profitability in the long run. It could not be ascertained whether a shorter or longer cash conversion cycle enhances firm profitability, since findings to support this premise were weak. However, it was observed that manufacturing firms are on average, carrying lot of debt in their capital structures.
The present study contributes to existing literature by presenting one of the very recent findings on this topic while simultaneously testing the validity of recent local and international methodologies, in order to inform policy change.