CREDIT RISK, LIQUIDITY RISK AND FEEDBACK EFFECTS ON MICROFINANCE INSTITUTIONS: AN EMPIRICAL EVIDENCE IN ECUADOR

Ten years of data from an Ecuadorian microfinance entity together with data on macroeconomic variables was analyzed. Through a Vector Autoregressive Model, we established a one-way causal relationship between credit and liquidity risks. The model includes the feedback effects through successive dete...

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Bibliographic Details
Published in:Journal of developmental entrepreneurship 2022-12, Vol.27 (4)
Main Authors: UQUILLAS, ADRIANA, SIMBAÑA, BELEN
Format: Article
Language:English
Subjects:
Microfinance
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Summary:Ten years of data from an Ecuadorian microfinance entity together with data on macroeconomic variables was analyzed. Through a Vector Autoregressive Model, we established a one-way causal relationship between credit and liquidity risks. The model includes the feedback effects through successive deterioration of credit portfolio and illiquidity spreading and the effects of macroeconomics and financial variables on these risks. Our results corroborate the importance of incorporating new contagion channels in microfinance institutions’ risk management, which helps microfinance institutions become financially sustainable, generating a relatively stable level of profitability that can improve the entrepreneur’s economic situation.
ISSN:1084-9467
1793-706X
DOI:10.1142/S108494672250025X