Deleveraging initiatives and productivity of microfinance institutions in China

One of the important cores of China's economic transition is to create a sustained deleveraging of the economic fundamentals in need of a credit reallocation process through the financial intermediation transferring the credit quotas from the heavily indebted fields to the credit-starved fields. However, small businesses, such as individual businesses, household businesses and small-medium enterprises, which occupy the most subset in credit-starved fields, are generally deemed to be financially vulnerable and exclusive. Thereby, the contradiction that the deleveraging process motivates financial institutions to lend to their repellent small businesses raises a strong appeal for access to microloans for financial inclusion by microfinance institutions (MFIs). Nonetheless, seldom has researcher knowledge with regards to the empirical evidence corroborated the multi-dimensional potential determinants of MFIs’ response in deleveraging implementation, as well as the shocks by deleveraging the ability and aspiration of MFIs to insist on practicing financial inclusion. In the outreach to engage in the financial inclusion of small businesses, productivity has been one of scientific approach used to assess how MFIs are performing, specifically whether they are financially sustainable and suitable for lending for financial inclusion in parallel with social wellbeing shared with their stakeholders. In this light, this study identifies the determinants of MFIs’ deleveraging implementation using three macroeconomic: macroeconomic, external and internal factors for the first objective. The second objective is to examine the impact of deleveraging on the financial outreach productivity of MFIs. For the third objective, this study investigates the deleveraging effect on social outreach productivity. To examine the objectives, this study introduces the Generalized Method of Moments (GMM) as the main estimation method with the annual data consisting of 204 MFIs from 2012 to 2021 in China. The main results from the GMM estimation for the first objective indicate that the macroeconomic, external and internal factors basically present significant impacts on deleveraging of MFIs. Moreover, the empirical findings from the estimation of the second and third objectives show a more positive impact due to deleveraging on financial outreach productivity and a negative effect on social outreach productivity. It intuitively briefs that the financial sustainability of MFIs in the practice of financial inclusion can be consolidated along with the deleveraging progress but at expense of sacrificing the social benefits appealed by stakeholders to a certain extent. The robustness of these findings is proven in alternative estimations as well. The findings obtained from the analysis are in good agreement with relevant theories, and bridge the gaps identified in prior research. In addition to some contributions towards scholarly works, the findings of this study also share a predictive model with significant implications for policymakers, management, participants and academics. It particularly emphasizes the importance of fully identifying the factors involved in scientific deleveraging implementation in order to reconcile the financial and social outreach productivity of MFIs to achieve the dual goals of financial sustainability and social contribution by practicing financial inclusion. Admittedly, the limitations of the study need to be acknowledged and relevant recommendations for future research are outlined last.

Text 125284 - Full Text.pdf Download (2MB) Text SPE 2023 22 - Declaration Form.pdf Restricted to Repository staff only Download (670kB) Text SPE 2023 22 - Full Text.pdf Restricted to Repository staff only Download (2MB) Official URL or Download Paper: http://ethesis.upm.edu.my/id/eprint/18842

Actions (login required)

View Item