The Impact of Macroeconomic Factors on the Yield of Loan Portfolio of Microfinance Institutions in Macedonia

Abstract

The profitability of financial institutions, especially those who lend to small and medium enterprises, is studied by many authors, attempting to find and analyze the factors that affect the portfolio of financial institutions. This research paper analyzes the impact of different macroeconomic factors on the profitability of microfinance institutions in Macedonia. Relying on some economic practices and theory, we have set our hypothesis, which says that inflation rates, GDP, interest rates and credits, show their significant effects and are positively correlated with the bank portfolio (microfinance institutions, MFI-s). The results are derived through multiple regressions using the OLS method, based on the official data collected by some institutions, such as the Central Bank of Macedonia, the World Bank, domestic commercial banks and private saving houses.Our objective is to find which model will display the most accurate result; thus we analyze three econometric models: the linear model, the exponential model without restriction and the exponential model with restriction (partial ratio transformation). All results confirm the null hypothesis about the important and positive impact of macroeconomic indicators, through regression analysis, while the F test proves that the exponential model with restriction of GDP (ratio transformation) shows the most exact result for this study. Part of this research paper is the matrix which shows a positive correlation of variables considered on the model. Our results are compared with other studies from different countries and authors, confirming the null hypothesis about Macedonia. We can confirm that our results about Macedonia do not differ much from the results of countries at the same stage of economic development. We can see a significant relation between these variables, but the impact is not large enough and this effect is based on bank policies that avoid macroeconomic risks; therefore, in case of facing with inflation, banks respond by increasing the effective interest rate.

Keywords: Microfinance; yield portfolio; microfinance institutions; macroeconomic factors; Macedonia.

JEL Classifications: F62; F65; G10; G20; G21.