Financial Performance of Microfinance Institutions in Afghanistan Amid COVID-19 and Political Instability

Abstract

This study aims to analyse the financial performance of microfinance institutions (MFIs) in Afghanistan for an extremely unstable period, for the financial years of 2014–2015 to 2023–2024, to address significant political instability and the COVID-19 pandemic. Using panel data from the top larger MFIs in Afghanistan, the study looks at the effects of internal institutional characteristics on the return on assets (ROA), which is an indicator of financial sustainability. Panel regression techniques are employed to analyse the relationships between these factors and institutional performance. The findings indicate that branch expansion enhances ROA; therefore, increasing branches led to greater profitability, even amid political instability and uncertain conditions. While the gross loan portfolio had a negatively significant effect on financial performance, this finding indicates that quality and assessing the associated risk of the loan portfolio may be challenging. Total income and the number of active borrowers were less significant or impactful variables. Overall, the findings indicate that MFIs encountered financial problem and even some of them led to stop their services, moreover, highlighting the need for risk-adapted progress and efficient portfolio control to maintain the financial viability of MFIs working especially in fragile or crisis-affected economies.