![]() The development of the MFI profile combined with other unique characteristics of the region makes it ideal for the study of asset-liability management. The region is one of the poorest in need of the provision of inclusive and sustainable financial services. ![]() In addition, more and more SSA countries are introducing special microfinance regulations that enable MFIs to offer additional financial services, such as deposit mobilisation and the use of other commercial funds. There is evidence of a dramatic shift in the funding structure of microfinance institutions in sub-Saharan Africa (SSA). However, studies suggest that liability management is also critical to meet long-term capital needs and to address subsidy constraints. However, since most MFIs started with subsidies and often offer short-term loans, they mainly focus on the quality of the loan portfolio (asset management). ALM is the process of planning, implementing and controlling the volume, maturity, price, composition, quality and liquidity of assets and liabilities of financial institutions. Therefore, asset-liability management (ALM) has emerged as a critical and future challenge in the microfinance industry. Therefore, MFI managers need to know how to manage the supply of funds and the demand for funds, which requires matching the maturity, currency and price of the composition of assets and liabilities. On the other hand, the loan portfolio is the main source of income for MFIs and constitutes a large part of their assets. Therefore, on the one hand, MFIs need to maintain a very high portfolio quality to attract potential creditors and show that they are secure investment opportunities. Accordingly, the share of loans from commercial banks in the microfinance sector has increased rapidly in recent years. In addition, many international donors such as ACCION are pushing the microfinance sector to reduce its dependence on subsidies. The literature is dominated by the institutional approach, which argues that financial sustainability is better in fulfilling the social mission and supports the use of commercial loans as a source of funds. Foreign currency debt and deposits thus pose a currency risk to MFIs whose main assets are denominated in the local currency.įourth, there is a theoretical dispute in the microfinance literature between the use of subsidies and commercial sources of funds to finance their activities. Third, some MFIs mobilise savings and take out foreign currency loans because they do not receive sufficient funds from local creditors or banks. In addition to asset and liability price adjustments, MFI managers should maintain the liquidity and safety of deposited funds. ![]() This means that depositors expect a real return despite high inflation. They are also most likely to mobilise deposits to fund their loan portfolio. Second, MFIs operate mainly in developing countries where inflation is high. Management must ensure that loans and borrowings are compatible so that interest rate risk can be controlled by adjusting interest rates. Apart from the generally recognised credit risk, many MFIs are therefore exposed to several risks.įirst, if the MFI has borrowed funds at a floating interest rate, this may move up and down with the market while the MFI's loans are at a fixed rate or vice versa. ![]() This rapid expansion and development of the microfinance profile brought additional risks to their balance sheet structure. Some of these include the introduction of a new medium- and long-term loan product, a shift to individual lending, the provision of a range of financial services, registration in the legal framework and the use of commercial sources of finance. Microfinance is an industry undergoing various paradigm shifts. ![]()
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