DETERMINANTS OF MICROFINANCE PROFITABILITY; EVIDENCE FROM LATIN AMERICA

This study attempts to determine the determinants of the profitability of microfinance institutions (MFIs) operating in the Latin American region using data from the period 2005-2018. We used numerous variables as determinants of the profitability of MFIs. We used ordinary least squares (OLS) and the most sophisticated methodology for analysing dynamic panel data, generalized method of moments (GMM), in this study. The factors that were considered very significant in the determination of profitability of MFIs were Average loan balance (ALB), Number of active borrowers (NOAB), Borrowers per staff member (BPSM), AGE, Equity to Assets (ETA), and COUNT, all of which increase the profitability of MFIs. Portfolio quality (P30), number of offices (OFF), SIZE, and regulation status (RG) harm profitability (ROA) and hence decrease the profitability of MFIs. However, cost per borrower (CPB), number of diamonds (DM), and gross domestic product (GDP) had an nonsignificant effect on profitability (ROA). These results suggest that if MFIs want to increase their profitability, they have to increase their borrowers while simultaneously decreasing the number of offices. The findings from this study will help us reach a deep understanding for verbalising future policy concerning the development of MFIs.