Understanding Relevance of Business Environment for Financial Performance: The Case of Asian Non-Banking Microfinance Institutions

Abstract

Microfinance aims at providing productive loans to deprived segments of society that helps in poverty eradication. Existing studies ignore some essential factors of business environment, which can influence the performance of microfinance institutions. We have collected data from the Doing Business project of the World Bank and audited financial statements of 52 Asian non-banking microfinance institutions for the period of 2012–2016. This study has employed system method of moments (GMM) technique with xtabond2 command, and the findings of analyses reveal the significant impact of different business environmental factors such as getting credit, protecting minor investors and paying taxes on financial performance of selected institutions. These findings recommend that practitioners need to pay particular attention to the formulation of such policies that can help these institutions in coping better with their external business environment.