EFFECT OF SPECIFIC FACTORS ON SUSTAINABILITY OF SELECTED MICROFINANCE COMPANIES IN NEPAL

Abstract

This study investigates effect of specific factors on sustainability of selected microfinance companies in Nepal. Secondary data is gathered from microfinance companies of Nepal for ten year periods (2013/14-2022/23). This study used correlation and multiple regression for data analysis. This study reveals that the micro finance companies are is financially sustainable without depending on outside assistance since it is making enough income from its operations to pay for its expenditures. The correlation analysis shows that operating efficiency ratio has insignificant positive relation with operating self-efficiency ratio while leverage ratio and credit risk have significant negative relationship with operating self-efficiency ratio. At the meantime, size of companies has significant positive correlations with operating self-efficiency ratio. Further, inflation rate has insignificant negative association with operating self-efficiency ratio of the microfinance companies. The regression results also show that operational efficiency ratio and leverage ratio have significant negative effect on sustainability or operating self-efficiency ratio of microfinance companies in Nepal. Similarly, credit risk has significant negative effect on operating self-efficiency ratio. However, the size of the companies has positive and statistically significant effect on operating self-efficiency ratio of microfinance companies. Moreover, inflation rate has insignificant negative effect on the operating self-efficiency ratio of the microfinance companies. Therefore, this study concluded that operating efficiency ratio, leverage ratio, credit risk, size of companies are the key factors of sustainability of microfinance companies in Nepal. This study investigates effect of specific factors on sustainability of selected microfinance companies in Nepal. Secondary data is gathered from microfinance companies of Nepal for ten year periods (2013/14-2022/23). This study used correlation and multiple regression for data analysis. This study reveals that the micro finance companies are is financially sustainable without depending on outside assistance since it is making enough income from its operations to pay for its expenditures. The correlation analysis shows that operating efficiency ratio has insignificant positive relation with operating self-efficiency ratio while leverage ratio and credit risk have significant negative relationship with operating self-efficiency ratio. At the meantime, size of companies has significant positive correlations with operating self-efficiency ratio. Further, inflation rate has insignificant negative association with operating self-efficiency ratio of the microfinance companies. The regression results also show that operational efficiency ratio and leverage ratio have significant negative effect on sustainability or operating self-efficiency ratio of microfinance companies in Nepal. Similarly, credit risk has significant negative effect on operating self-efficiency ratio. However, the size of the companies has positive and statistically significant effect on operating self-efficiency ratio of microfinance companies. Moreover, inflation rate has insignificant negative effect on the operating self-efficiency ratio of the microfinance companies. Therefore, this study concluded that operating efficiency ratio, leverage ratio, credit risk, size of companies are the key factors of sustainability of microfinance companies in Nepal.