THE EFFECT OF MACROECONOMIC VARIABLES ON FINANCIAL PERFORMANCE OF MICROFINANCE COMPANIES

Abstract

The purpose of this study is to investigate the profitability ratios of Nepalese microfinance institutions (MFIs) and to investigate the link between macroeconomic factors and financial performance. The study looks at how macroeconomic parameters like GDP, inflation rate, economic growth rate, and interest rate affect the financial performance of MFIs. To begin, an examination of macroeconomic variables offers a clear picture of Nepal's economic indicators throughout a certain time period, including GDP, inflation rate, economic growth rate, and interest rate. Second, the survey finds Laxmi Laghubitta Bittya Santhan Limited (LLBS) as the most profitable MFI, demonstrating effective resource usage and profitability. Other MFIs, like GIMELB, NMBMF, and CLBSL, have variable degrees of asset usage and profitability. Notably, NMBFBS has been shown to be less lucrative and to lack adequate asset control. Furthermore, the study investigates the link between macroeconomic factors and MFI financial performance. The findings show substantial connections between variables such as GDP and industrial return on assets (IND-ROA), inflation and IND-EPS, economic growth rate and IND-EPS. The finding of the study also convey that both dependent has significant impact by independent variables. Overall, this study adds understanding of the profitability and financial performance of Nepalese microfinance firms. The findings emphasize the relevance of macroeconomic factors in influencing MFI success and offer useful insights for policymakers, practitioners, and scholars in the microfinance industry.