Does capital structure affect performance of microfinance institutions? Evidence from microfinance institutions in Africa

Many countries consider MFIs as poverty reduction mechanisms, as a result due attention is given to the expansion of Microfinance institutions and their number is increasing from period to period, however, the number of people living without access to finance is still significant. Considerably, lack of adequate funding is supposed as a constraint for MFIs to meet the demand of the poor, thus possibly performance of MFIs is influenced. The aim of this study is to identify the impact of capital structure on performance of African MFIs. Thus, data is collected from 275 MFIs in 26 countries with 741 observations which are reported to mix-market during the period 2006–2010 and macro-economic data such as Inflation, GDP and share of rural population are collected from World Bank sources. The collected data is analysed using ordinary least square and two stage least square regressions. The results of the study reveal that capital structure is strong determinant of performance with little/no impact on operational sustainability and share of women borrowers. These results pave a way for future study, where future researchers can broaden the area of research through considering other additional variables which are not covered here.