Impact of Financial Management Decisions on the Profitability of Microfinance Institutions in Bangladesh

© DHAKA UNIVERSITY JOURNAL OF MANAGEMENT

SPECIAL ISSUE

DOI: https://doi.org/10.57240/DUJMJUNE01

Page No: 1-12, ISSN: 2221-2523

Parul Akhter 1
Faruq Ahmed, Ph.D. 2

Abstract

The research examines the effect of financial management decisions, such as financial decisions, capital management, and operating cash flows, on the profitability of 12 microfinance institutions in Bangladesh for four years, from 2015 to 2018. The financial management decisions are represented by the natural log of the outstanding loan, borrowing cost ratio, operating cost   to total income, operating self-sufficiency, and capital fund to loan outstanding ratio. Return on assets (ROA) has been utilized to estimate the profitability of microfinance institutions. The results were analyzed using the panel data regression model. Borrowing cost ratio, operating cost to total income, operating self-sufficiency, and capital fund to loan outstanding ratio are all significant determinants of microfinance institution profitability, while the natural log of the outstanding loan is a non-significant determinant. The ratio of borrowing cost and operating cost to total income have highly and negatively linked to the profitability of a microfinance institution. The operating self-sufficiency and capital fund to outstanding loan ratio have a substantial and favorable association with the microfinance institution’s performance.

 

Keywords: Profitability, microfinance institutions, borrowing, financial decision, and operating cash.

 

1Associate Professor, School of Business, Ahsanullah University of Science and Technology, Bangladesh

2 Professor, Department of Management, University of Dhaka, Bangladesh.

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