Determination of sustainability of nepalese microfinance companies

Abstract

The main purpose of the study was to examine the determinants of sustainability of Nepalese microfinance companies. Secondary data is gathered from microfinance companies of Nepal for ten-year periods (2014/15-2023/24). This study used correlation and multiple regression for data analysis. This study shows that microfinance institutions in Nepal are able to operate without the need for outside help since their activities bring in enough revenue to pay for their costs means sound financial sustainability. The correlation analysis shows an insignificant negative relationship between the operating efficiency ratio and operational self-sufficiency ratio and leverage ratio has also insignificant negative relationship with the operational self-sufficiency ratio. However, credit risk exhibits a significant negative relationship with the operational self-sufficiency ratio. In contrast, the size of the companies shows a significant positive correlation with the operational self-sufficiency ratio. Further, inflation rate has insignificant negative relationship with operation self-sufficiency ratio. The regression analysis further reveals that the operating efficiency ratio and credit risk have significant negative impact on sustainability (or operational selfsufficiency

ratio) of microfinance companies in Nepal. Similarly, leverage ratio has insignificant negative effect on the operational self-sufficiency ratio. On the other hand, the size of the companies has a positive and statistically significant effect on the operational self-sufficiency ratio. Moreover, inflation rate, however, has an insignificant negative effect on the operational self-sufficiency ratio. Overall, this study concluded that operating efficiency ratio, credit risk and size of companies are key factors influencing the sustainability of microfinance companies in Nepal.

Keywords: Operating self-sufficiency ratio, operating efficiency ratio, leverage ratio, credit risk and size of the company.