Modeling the Relationship Between Risks and the Sustainability of Microfinance Institutions (MFIs) in Ghana

Abstract

A number of Microfinance Institutions (MFIs) both in Ghana and in other countries have had risk-related challenges that have affected their sustainability. In recent years, strategic decisions of risk have affected MFIs operations in Ghana significantly. This paper seeks to demonstrate the relationship between risk factors and MFIs sustainability in Ghana. The paper adopts a quantitative strategy for the data source with a deductive approach. The hypothesis carried out on various drivers of sustainability were upheld with a significant p-value of 0.000 < 0.01p and concluded that all the drivers of sustainability identified have a significant effect on MFIs sustainability in Ghana. The measurement model and structural model of the Partial Least Square Structural Equation Model (PLS-SEM) was used to measure the relationship between risk and MFIs sustainability. The path coefficient between risk factors and the drivers of MFIs sustainability was 0.582 with a significant p-value of 0.000 < 0.01. This establishes that risk factors have a significant effect on all drivers of microfinance institutions sustainability. Operators of microfinance in Ghana need to take an appreciable and well-managed level of risk to enhance their sustainability.

Keywords: institutions, microfinance, risk, sustainability

DOI: 10.7176/JESD/10-12-11

Publication date:June 30^th 2019