The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank

Kennedy Henry Mbuya; Amani Tegambwage

doi:doi:10.11648/j.ijefm.20221005.17

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The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank

Kennedy Henry Mbuya, Amani Tegambwage

Published in International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 5)

Received: 2 August 2022 Accepted: 5 September 2022 Published: 24 October 2022

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Abstract

This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. The profitability of microfinance institutions (MFIs) was measured by ROAA. The study employed a quantitative research approach and time-series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. Lastly, foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables have no significant influence on the profitability of MFIs both in the short run and in the long run. It is recommended that the MFIs in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 5)
DOI	10.11648/j.ijefm.20221005.17
Page(s)	288-298
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Market Risk, Interest Rate Risk, Foreign Exchange Rate, Profitability, Microfinance Institutions, Tanzania

References

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APA Style

Kennedy Henry Mbuya, Amani Tegambwage. (2022). The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. International Journal of Economics, Finance and Management Sciences, 10(5), 288-298. https://doi.org/10.11648/j.ijefm.20221005.17

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ACS Style

Kennedy Henry Mbuya; Amani Tegambwage. The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. Int. J. Econ. Finance Manag. Sci. 2022, 10(5), 288-298. doi: 10.11648/j.ijefm.20221005.17

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AMA Style

Kennedy Henry Mbuya, Amani Tegambwage. The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. Int J Econ Finance Manag Sci. 2022;10(5):288-298. doi: 10.11648/j.ijefm.20221005.17

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@article{10.11648/j.ijefm.20221005.17,
  author = {Kennedy Henry Mbuya and Amani Tegambwage},
  title = {The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {5},
  pages = {288-298},
  doi = {10.11648/j.ijefm.20221005.17},
  url = {https://doi.org/10.11648/j.ijefm.20221005.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221005.17},
  abstract = {This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. The profitability of microfinance institutions (MFIs) was measured by ROAA. The study employed a quantitative research approach and time-series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. Lastly, foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables have no significant influence on the profitability of MFIs both in the short run and in the long run. It is recommended that the MFIs in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.},
 year = {2022}
}

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TY  - JOUR
T1  - The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank
AU  - Kennedy Henry Mbuya
AU  - Amani Tegambwage
Y1  - 2022/10/24
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221005.17
DO  - 10.11648/j.ijefm.20221005.17
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 288
EP  - 298
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221005.17
AB  - This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. The profitability of microfinance institutions (MFIs) was measured by ROAA. The study employed a quantitative research approach and time-series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. Lastly, foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables have no significant influence on the profitability of MFIs both in the short run and in the long run. It is recommended that the MFIs in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.
VL  - 10
IS  - 5
ER  -

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Author Information

Kennedy Henry Mbuya

Department of Business Administration, The University of Dodoma, Dodoma, Tanzania
Amani Tegambwage

Department of Business Administration, The University of Dodoma, Dodoma, Tanzania

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Kennedy Henry Mbuya, Amani Tegambwage. (2022). The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. International Journal of Economics, Finance and Management Sciences, 10(5), 288-298. https://doi.org/10.11648/j.ijefm.20221005.17

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ACS Style

Kennedy Henry Mbuya; Amani Tegambwage. The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. Int. J. Econ. Finance Manag. Sci. 2022, 10(5), 288-298. doi: 10.11648/j.ijefm.20221005.17

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AMA Style

Kennedy Henry Mbuya, Amani Tegambwage. The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank. Int J Econ Finance Manag Sci. 2022;10(5):288-298. doi: 10.11648/j.ijefm.20221005.17

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@article{10.11648/j.ijefm.20221005.17,
  author = {Kennedy Henry Mbuya and Amani Tegambwage},
  title = {The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {5},
  pages = {288-298},
  doi = {10.11648/j.ijefm.20221005.17},
  url = {https://doi.org/10.11648/j.ijefm.20221005.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221005.17},
  abstract = {This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. The profitability of microfinance institutions (MFIs) was measured by ROAA. The study employed a quantitative research approach and time-series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. Lastly, foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables have no significant influence on the profitability of MFIs both in the short run and in the long run. It is recommended that the MFIs in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.},
 year = {2022}
}

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TY  - JOUR
T1  - The Influence of Market Risk on Profitability of Microfinance Institutions in Tanzania: A Case of FINCA Microfinance Bank
AU  - Kennedy Henry Mbuya
AU  - Amani Tegambwage
Y1  - 2022/10/24
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221005.17
DO  - 10.11648/j.ijefm.20221005.17
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 288
EP  - 298
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221005.17
AB  - This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. The profitability of microfinance institutions (MFIs) was measured by ROAA. The study employed a quantitative research approach and time-series research design. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. Lastly, foreign exchange risk has a negative significant association with profitability in the long run while it has no statistically significant influence on profitability in the short run. Macroeconomic variables have no significant influence on the profitability of MFIs both in the short run and in the long run. It is recommended that the MFIs in Tanzania especially the locally owned need to find ways to mitigate the effect caused by market risk factors on their profits including the use of financial derivatives and asset securitization.
VL  - 10
IS  - 5
ER  -

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