IMPACT OF FINANCIAL RISK ON THE FINANCIAL PERFORMANCE OF MICROFINANCE INSTITUTIONS: A LITERATURE REVIEW

Abstract

Microfinance is an economic means designed to encourage financial inclusion to reach poor people that traditional formal financial institutions like banks are unable to reach. In recent decades, the microfinance sector has experienced remarkable expansion. The aim of this study is to review the existing literature in order to ascertain how financial risk impacts MFIs' capacity to maintain their financial viability. Numerous research on efficiency, the twin goal of achieving sustainability and social performance, and financial sustainability have been carried out in the past and few have been conducted on analyzing the financial risk’s effect on the financial performance of MFIs. Liquidity risk and credit risk are potentially serious risks for the financial system’s stability and the long-term viability of financial institution management.