This research brings together the recent empirical contributions related to the capital structure of microfinance institutions. Based on the review of the literature, we examine the implementation of standard finance theory to explain the change in the microfinance’s capital structure. The lack of appropriate theories to explain the microfinance’s capital structure entails the importance of this review of the literature. The review of empirical researches shows that the pecking order theory is applicable in the microfinance industry with respect to some specification while the industry’s business model evolves aligning with the life-cycle theory. Lastly, the impact of capital structure within the sector affirms the predictions of the profit-incentive theory.
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