Factors Influencing Loan Portfolio Quality of Microfinance Institutions in Haiti

Abstract

This paper examines factors affecting loan portfolio quality of MFIs in Haiti, over the period of October 2016 to September 2021, using a sample of four non-cooperative MFIs (MFI1, MFI2, MFI3 and MFI4) offering individual loans. This study applies the Ordinary Least Squares (OLS) regression to estimate the effects of two macroeconomic variables (exchange rate and inflation rate) and two micro-variables (loan amount per borrower and gross loan portfolio) on loan portfolio quality, measured by portfolio at risk over 30 days (PAR30). One statistical model has been specified for all MFIs and one statistical model has been specified for each MFI individually. Overall, the results show that portfolio at risk of MFIs can increase with the depreciation of local currency and as the inflation rises; but the results are not statistically significant. However, distinctively, the findings of MFI1 and MFI3 indicate a positive and statistically significant association with the exchange rate, while the output of MFI4 suggests a negative and insignificant relationship with the exchange rate. Only the result of MFI2 indicates a negative and insignificant relationship between the loan portfolio quality and the inflation rate. On the other hand, the growth of the loan portfolio affects adversely and significantly the loan portfolio at risk of MFIs globally and individually, except MFI3 that indicates a negative and insignificant association with the gross loan portfolio. Among the four MFIs, only the finding of MFI4 shows that the loan portfolio quality would significantly improve as the amount disbursed per borrower increases. In contrast, for the rest of MFIs, as the loan amount increases, the PAR30 would rise. Some implications can be drawn in light of these findings. Authorities should create a promising macroeconomic environment that would help MFIs to limit their credit risk. Moreover, MFIs should reinforce their credit analysis, collection procedures and practices, in order to ensure their loan portfolio growth, without compromising its quality.