Impacts of Capital Structure on Microfinance Institutions’ Risk: Evidence from Low- and Middle-Income Countries

This study aims to evaluate the impact of capital structure and other factors on risk of microfinance institutions (MFIs) in 26 low-middle-income countries during 2014–2017. Empirical results show that MFIs with high financial leverage tended to face with higher risks. Thus, authorities in such countries should increase supervision of MFIs with modest equity in order to ensure the stable and sustainable operation of the MFIs system. In addition, the research also recognizes that size of MFIs, number of borrowers, total assets and debt-to-equity ratio had a negative impact on MFIs control of bad debts. Female borrowers, borrowers in rural areas and number of branches tended to lessen MFIs bad debts. Lending to female customers can both bring benefits to MFIs and empower women in society.