LIQUIDITY RISK AND ITS DETERMINANTS IN MICROFINANCE INSTITUTIONS

Abstract

The purpose of this study was to evaluate the bank's exposure to liquidity risk in the context of Nepal and to pinpoint the key factors influencing the bank's liquidity risks there. The demographic and sample, data source, and data analysis techniques are all covered under the research design. Five microfinance organizations are selected as a sample from the entire financial system; the analysis primarily uses secondary data. Research methodology provides a framework for methodically resolving research quandaries in order to achieve the study's main goal. It includes a succinct description of the study design, the types and sources of data, the procedure for gathering data, and the methodology of the instruments used to analyze the data. This study uses secondary data and a combination of casual and descriptive comparative research designs. Secondary data is gathered from the associated annual reports, periodicals, and other publications of the banks, as well as from the Nepal Stock Exchange, Nepal Rastra Bank, and other relevant magazines. The project spans ten years, with data collected from 2013/14 to 2022/23. Numerous statistical and financial methods, such as regression, correlation, standard deviation, average (mean), and others, have been utilized for mathematical analysis. In a similar manner, calculations have been done using Word, Excel, SPSS, and spreadsheets. The analysis's conclusions indicate that there is no meaningful correlation between GDP and the Capital Adequacy Ratio (CAR) and the Liquid Assets to Total Assets Ratio (LATA). On the other hand, there are somewhat negative correlations between LATA and both inflation (IN) and nonperforming loans (NPL). Furthermore, there is a marginally positive correlation found between LATA and Return on Equity (ROE), suggesting that an increase in the Liquid Assets to Total Assets Ratio will lead to a minor improvement in ROE. The investigation yields some significant results about the factors influencing the liquidity of microfinance enterprises in Nepal. First, the correlation study shows how important it is to handle non-performing loans (NPL).