Impact of Risk Management towards Sustainability of Microfinance Industry in Sri Lanka: A Case Study
Abstract
The purpose of this study is to investigate the relationship between risk management practices and the sustainability of the microfinance industry in Sri Lanka. Given the rapid growth of the microfinance sector over the past two decades, understanding how effective risk management contributes to long-term sustainability is crucial. The study employed a quantitative research design, utilizing simple regression analysis to explore the hypothesized relationship between risk management (independent variable) and sustainability of the microfinance industry (dependent variable). The sample consisted of 376 women microfinance borrowers from three districts in Sri Lanka, selected using a cluster sampling approach. Primary data were collected through surveys, while secondary data were obtained from the Central Bank of Sri Lanka (CBSL), MFI annual reports, and the Microfinance Information Exchange (MIX). The analysis revealed a significant positive relationship between effective risk management and the sustainability of the microfinance industry in Sri Lanka. The results indicate that improvements in risk management practices are likely to enhance the long-term viability of microfinance institutions, ensuring their capacity to continue serving low-income clients effectively. The findings underscore the importance of robust risk management frameworks for the sustainability of the microfinance industry in Sri Lanka. Despite the growth of the sector, without effective risk management, the long-term success and stability of microfinance institutions may be compromised. This study highlights the need for microfinance institutions to prioritize risk management as a critical component of their operational strategies. Policymakers and industry regulators should encourage and support the development of risk management capacities within MFIs to safeguard the industry’s future. Further research could expand the scope to include more districts and a broader range of MFIs to validate these findings and explore additional factors influencing sustainability.
Full text article
References
Adelowokan, O. A. (2012). Growth effect of education and health expenditure in Nigeria: Critical issues and strategies for enhancing the use by the rural communities. Journal of Public Health and Epidemiology, 4(1), 5-13. https://doi.org/10.5897/JPHE11.133
Ahmed, D. H., Naser, J., & Deam, R. T. (2016). Particles impact characteristics on cutting surface during the abrasive water jet machining: Numerical study. Journal of Materials Processing Technology, 232, 116-130. https://doi.org/10.1016/j.jmatprotec.2016.01.032
Ahmed, S. H., Bouk, S. H., Yaqub, M. A., Kim, D., Song, H., & Lloret, J. (2016). CODIE: Controlled data and interest evaluation in vehicular named data networks. IEEE Transactions on Vehicular Technology, 65(6), 3954-3963. https://doi.org/10.1109/TVT.2016.2558650
Anyanwu, S. O., Adam, J., Obi, B., & Yelwa, M. (2015). Human capital development and economic growth in Nigeria. Journal of Economics and Sustainable Development, 6(14), 16-26.
Asteriou, D., & Hall, S. (2006). Applied econometrics (ISBN: 978-0-230-27182-1). Palgrave Macmillan.
Bakare, A. S., & Olubokun, S. (2011). Health care expenditure and economic growth in Nigeria: An empirical study. Journal of Emerging Trends in Economics and Management Sciences, 2(2), 83-87.
Bakare, A. S., & Olubokun, S. (2011). The exchange rate determination in Nigeria: The purchasing power parity option. Mathematical Theory and Modeling, 1(2), 5-22.
Bank, W. (2018). Poverty and shared prosperity 2018: Piecing together the poverty puzzle. The World Bank.
Barenberg, A. J., Basu, D., & Soylu, C. (2015). The effect of public health expenditure on infant mortality: Evidence from a panel of Indian states, 1983-84 to 2011-12. Journal of Development Studies, 52(5), 644-657. https://doi.org/10.1080/00220388.2016.1241384
Boachie, M. K., & Ramu, K. (2017). Public health expenditure and health outcomes: A review. International Journal of Management and Development Studies, 6(1), 15-21. https://doi.org/10.14419/ijh.v4i1.5794
Comfort, E., Ojamaliya, A., Okafor, V., Godwin, A., & Oluwapelumi, A. (2018). Dynamic impact of energy consumption on the growth of Nigeria economy (1986-2016): Evidence from symmetrical autoregressive distributed lag model. International Journal of Energy Economics and Policy, 8(2), 188-195.
Crémieux, P. Y., Ouellette, P., & Pilon, C. (1999). Health care spending as determinants of health outcomes. Health Economics, 8(7), 627-639. https://doi.org/10.1002/(SICI)1099-1050(199911)8:7<627::AID-HEC474>3.0.CO;2-8
Danladi, G. P., Sale, Z., & Elisha, G. A. (2019). Effects of government expenditure on manufacturing sector in Nigeria (1986-2016). Dutse Journal of Economic Development, 7(1), 70-81.
Ebiringa, O. T., & Charles-Anyaogu, N. (2012). Impact of government sectorial expenditure on the economic growth of Nigeria. International Journal of Economic Research, 3(6), 82-92.
Fullman, N., Yearwood, J., Abay, S. M., Abbafati, C., Abd-Allah, F., Abdela, J., . . . Aboyans, V. (2018). Measuring performance on the Healthcare Access and Quality Index for 195 countries and territories and selected subnational locations: A systematic analysis from the Global Burden of Disease Study 2016. The Lancet, 391(10136), 2236-2271. https://doi.org/10.1016/S0140-6736(18)30994-2
Ghosh, S., Bansal, G. C., Gupta, S. C., Ray, D., Khan, M. Q., Irshad, H., . . . Ahmed, J. S. (2007). Status of tick distribution in Bangladesh, India and Pakistan. Parasitology Research, 101(2), 207-216. https://doi.org/10.1007/s00436-007-0684-7
Olakunle, O. S., Oladimeji, O., Olalekan, A. W., Olugbenga-Bello, A., Akinleye, C., & Oluwatoyin, O. A. (2014). Knowledge of tuberculosis management using directly observed treatment short course therapy among final year medical students in South Western Nigeria. Pan African Medical Journal, 18(1). https://doi.org/10.11604/pamj.2014.18.32.3553
Olopade, B. C., Okodua, H., Oladosun, M., Matthew, O., Urhie, E., Osabohien, R., . . . Johnson, O. H. (2020). Economic growth, energy consumption and human capital formation: Implication for knowledge-based economy. International Journal of Energy Economics and Policy, 10(1), 37-43. https://doi.org/10.32479/ijeep.8165
Omosuyi, G., Ojo, J., & Olorunfemi, M. (2008). Geoelectric sounding to delineate shallow aquifers in the coastal plain sands of Okitipupa area, Southwestern Nigeria. The Pacific Journal of Science and Technology, 9(2), 562-577.
Onisanwa, I. D., Sunday, B. S.-I., & Adaji, M. O. (2018). Healthcare financing and health status analysis in Nigeria. Amity Journal of Healthcare Management, 3(2), 31-42.
World Health Organization. (2005). World health development indicators. Washington, DC.
World Health Organization. (2010). The world health report: Health systems financing: The path to universal coverage: Executive summary. Retrieved from [link not provided]
Orji, A., Ogbuabor, J. E., Okeke, C., & Anthony-Orji, O. I. (2018). Another side of the coin: Exchange rate movements and the manufacturing sector in Nigeria. Journal of Infrastructure Development, 10(1-2), 63-79. https://doi.org/10.1177/0974930618811499
Siddiqui, R., Afridi, U., Haq, R., & Tirmazi, S. H. (1995). Determinants of expenditure on health in Pakistan [with comments]. The Pakistan Development Review, 34(4), 959-970. https://doi.org/10.30541/v34i4IIIpp.959-970
Xian, J., Zhang, Z., Wang, Z., Li, J., Yang, B., Man, F., . . . Zhang, Y. (2010). Value of MR imaging in the differentiation of benign and malignant orbital tumors in adults. European Radiology, 20(7), 1692-1702. https://doi.org/10.1007/s00330-009-1711-0
Yusuf, M. B. (2016). An assessment of the impact of government expenditure on infrastructures: Evidence from Nigerian health sector performance. European Journal of Business and Management, 8(14), 8-14.
Al-Tamimi, H. A. H. (2002). Risk management practices: An empirical analysis of the UAE commercial banks. Finance India, 16(3), 1045.
Al-Tamimi, H. A. H., & Al-Mazrooei, F. M. (2007). Banks' risk management: A comparison study of UAE national and foreign banks. The Journal of Risk Finance, 8(4), 394-409. https://doi.org/10.1108/15265940710777333
Bhatt, N., & Tang, S. Y. (2001). Delivering microfinance in developing countries: Controversies and policy perspectives. Policy Studies Journal, 29(2), 319-333. https://doi.org/10.1111/j.1541-0072.2001.tb02095.x
Cohen, J. (1988). Statistical power analysis for the behavioral sciences (2nd ed.). Hillsdale, NJ: Erlbaum.
Fernando, N. A. (2007). Managing microfinance risks: Some observations and suggestions. Asian Journal of Agriculture and Development, 4(2), 1-22. https://doi.org/10.37801/ajad2007.4.2.1
Guardiola-Albert, C., Díez-Herrero, A., Amerigo Cuervo-Arango, M., Bodoque, J. M., García, J. A., Naranjo-Fernández, N., & Aroca-Jiménez, E. (2020). Analysing flash flood risk perception through a geostatistical approach in the village of Navaluenga, Central Spain. Journal of Flood Risk Management, 13(1), e12590. https://doi.org/10.1111/jfr3.12590
Hallunovi, A., & Berdo, M. (2018). The relationship between risk management and profitability of commercial banks in Albania. Asian Themes in Social Sciences Research, 1(2), 44-49. https://doi.org/10.33094/journal.139.2018.12.44.49
Himang, C. M., Beltran, H. U., Ocampo, L., Garcia II, J. M. S., Ancheta Jr, R. A., Himang, M. M., . . . Luzano, E. J. I. (2020). Acceptability evaluation of a developed thermal infrared device for fire risk management: Using the Unified Theory of Acceptance and Use of Technology (UTAUT) model. International Journal of Sociotechnology and Knowledge Development (IJSKD), 12(3), 1-25. https://doi.org/10.4018/IJSKD.2020070101
Ilbert, O., Arnouts, S., McCracken, H., Bolzonella, M., Bertin, E., Le Fevre, O., . . . Iovino, A. (2006). Accurate photometric redshifts for the CFHT legacy survey calibrated using the VIMOS VLT deep survey. Astronomy & Astrophysics, 457(3), 841-856. https://doi.org/10.1051/0004-6361:20065138
Kalu, E. O., Shieler, B., & Amu, C. U. (2018). Credit risk management and financial performance of microfinance institutions in Kampala, Uganda. Independent Journal of Management & Production, 9(1), 153-169. https://doi.org/10.14807/ijmp.v9i1.658
Kanake, J. K. (2014). The effect of credit risk management on financial sustainability of microfinance institutions in Kenya. Strathmore University.
Khakhrisal, M. (2009). MicroSave India Focus Note 21.
Krejcie, R. V., & Morgan, D. W. (1970). Determining sample size for research activities. Educational and Psychological Measurement, 30(3), 607-610. https://doi.org/10.1177/001316447003000308
Mbah, R. E., & Wasum, D. F. (2019). Microfinance survival: The impact of credit management on the sustainability of micro finance institutions in Cameroon. Historical Research Letter, 50, 1-7. https://doi.org/10.7176/HRL/50-05
Meyer, L. H. (2002). Inflation targets and inflation targeting. The North American Journal of Economics and Finance, 13(2), 147-162. https://doi.org/10.1016/S1062-9408(02)00074-8
Ndoka, S., & Islami, M. (2016). The impact of credit risk management in the profitability of Albanian commercial banks during the period 2005-2015. European Journal of Sustainable Development, 5(3), 445-445. https://doi.org/10.14207/ejsd.2016.v5n3p445
Oluyombo, P., & Olabisi, J. (2008). Risk management in microfinance institutions. Journal of Applied Economics, 1(1), 104-112. https://doi.org/10.2139/ssrn.2885361
Priyankara, D., & Sumanasiri, E. (2019). Determinants of microfinance loan default: An empirical investigation in Sri Lanka. South Asian Journal of Social Studies and Economics, 4(3), 1-13. https://doi.org/10.9734/sajsse/2019/v4i330127
Raue, P. J., Brown, E. L., Meyers, B. S., Schulberg, H. C., & Bruce, M. L. (2006). Does every allusion to possible suicide require the same response? A structured method for assessing and managing risk. Journal of Family Practice, 55(7), 605-613.
Razzaq, S., Maqbool, N., & Hameed, W. U. (2019). Factors affecting the elasticity of micro credit demand in southern Punjab, Pakistan. *International Journal of Social Sciences and Economic Review, 46-53. https://doi.org/10.36923/ijsser.v1i2.34
Rozzani, N., Mohamed, I. S., & Yusuf, S. N. S. (2017). Risk management process: Profiling of Islamic microfinance providers. Research in International Business and Finance, 41, 20-27. https://doi.org/10.1016/j.ribaf.2017.04.009
Savalei, V. (2018). On the computation of the RMSEA and CFI from the mean-and-variance corrected test statistic with nonnormal data in SEM. Multivariate Behavioral Research, 53(3), 419-429. https://doi.org/10.1080/00273171.2018.1455142
Authors
Copyright (c) 2021 Gishan Illangakoon, S. M. Ferdous Azam, Adam
This work is licensed under a Creative Commons Attribution 4.0 International License.
Copyright / Open Access Policy
This journal provides immediate and free open access to all its content and is distributed under the terms of the Creative Commons Attribution 4.0 International License (CC BY 4.0). This means readers are permitted to read, download, copy, distribute, print, search, or link to the full texts of articles, or use them for any other lawful purpose, without asking prior permission from the publisher or the author, as long as proper attribution is given. This policy is consistent with the Budapest Open Access Initiative (BOAI) definition of open access.