The Relationship between Portfolio at Risk and Operational Self-Sustainability of Microfinance Institutions in Vietnam

Abstract

This paper analyzes the relationship between portfolio at risk more than 30 days (PAR>30) and operational sustainability (OSS) of Vietnamese microfinance institutions during the period 2006 - 2019. Regression results with fixed effects (FE) and System GMM models show a negative impact of PAR>30 on OSS, significant at the 1% level. This implies that PAR>30 under being well controlled will help microfinance institutions in enhancing OSS. Notably, the paper also provides evidence that the use of different sources of capital (equity, savings, borrowings and other liabilities) changes the negative impact of PAR>30 on OSS and this also has the difference between Vietamese microfinance institutions compared to in Southeast Asia. Accordingly, the regression results show that the relationship of the interaction variables between PAR>30 and equity, borrowings and other liabilities with OSS in the context of Vietnamese microfinance institutions are positive (at the 1% significant level). However, in the context of Southeast Asia, these respective coefficients are negative (at the 1% level). Regarding savings, we find that significant similarity between Vietnam and Southeast Asia as the increasing in the use of this capital, it reduces the negative impact of PAR>30 on OSS. Some policy implications are suggested to help microfinance institutions by strengthening risk portfolio management and using appropriate operating capital sources in order to enhance sustainability.