LOAN MANAGEMENT AND PROFITABILITY OF RETAIL MICROFINANCE COMPANY IN NEPAL

Abstract

The main objective of this study is to examining the loan management and profitability of retail microfinance company in Nepal. The descriptive and causal research design has been adopted for the study. The study used secondary data of five microfinance companies in Nepal of ten years i.e. 2012/2013 to 2021/2022 data has been analyzing by using different statistical tools. Data is received from the annual report ofselected microfinance company’s website. ROA and ROE are taken as indicator of profitability of microfinance companies whereas; debt equity ratio, debt ratio, interest coverage ratio and size are the key factors of debt management. The collected information and the numerical data has been analyzed by using excel software and historical trend, descriptive statistics, correlation, ANOVA and regression tools are used and tables, graphs are used to show the data and results clearly. The results of the correlation analysis reveal certain relationships within the study. Firstly, there is a positive relationship of loan to deposit ratio with ROA and ROE. There is a positive correlation of the debt equity ratio, debt ratio and interest coverage ratio with return on assets and return on equity, while company size shows a negative association with return on assets and return on equity. These positive correlations indicate favorable conditions, suggesting that an increase in loan-to-deposit ratio, debt-equity ratio, debt ratio, or interest coverage ratio is associated with higher returns on assets and return on equity. However, an increase in company size is linked to a decrease in the performance of retail microfinance companies, as reflected in lower returns on assets and equity. From the regression analysis, the loan-to-deposit ratio has a positive but not statistically significant impact on return on assets and a negative and insignificant impact on return on equity. The debt-equity ratio has a negative and insignificant impact on the return on assets but a positive and significant impact on the return on equity. The return on assets is positively and significantly influenced but the return on equity is positively and insignificantly influenced by the debt ratio. Interest coverage ratio has a positive and insignificant effect on profitability i.e. return on assets and returns on equity. The performance of microfinance is positively and insignificantly influenced by the size of microfinance companies. Keywords: Loan to Deposit Ratio, debt-equity ratio, debt ratio, interest coverage ratio, profitability, microfinance