Análisis de la Variabilidad Climática Estacional e Interanual

That debt and equity are positively associated with both social and financial performance outcomes aligns with my hypotheses 1a and 1b across all legal charters. The positive association between ROA and debt-to-assets ratio is consistent with other research findings. Focusing on small and medium enterprises (SMEs), capital structure, and profitability, Abor (2005) shows that short- term debt ratio is positively correlated with return on equity. This confirms Michaelas et al. (1999), who found a positive impact on performance of interest-bearing debt since providers have return expectations. These investors provide more commercial funding in the form of debt or equity to

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profitable MFIs. Commercially funded MFIs are more incentivized to operate efficiently, increasing outreach by serving poorer or rural clients who have higher delivery costs (Armendáriz de Aghion & Morduch, 2005). Further, MFIs that use debt are more likely to achieve high social performance (Battilana & Lee, 2014; Von Stauffenberg and Rosas 2011; Cobb, Wry, and Zhao, 2016).

That said, it could also be that shareholders opt for interest-bearing debt as a way of managing agency costs, disciplining management to be more efficient by reducing managerial cash-flow waste (Grossman and Hart, 1982; Williams 1987; Kar, 2012), or pressuring managers to generate cash flow to pay interest expenses (Jensen, 1986; Abor, 2005).

Also, while equity providers have incentives for higher profitability, they may not be averse to social performance. Most equity holders who are not also borrowers have significant control rights and strong profit motives. This became obvious in 2007, for example, when Compartamos, a bank MFI in Mexico that served low-income women with non-collateralized micro loans to support small businesses (e.g., neighborhood shops or tortilla-making businesses), had its public issuance of equity oversubscribed by 13 times (Rosenberg, 2007; Malkin, 2008; Accion International, 2007). This initial public offering (IPO) was heralded as “a future in which microfinance routinely attracts investment from the private sector, freeing it from the ghetto of high-minded, donor-supported initiatives.” (Cull, Demirgu¨c-Kunt, and Morduch, 2009). Compartamos, previously a small, unknown bank MFI, became one of the largest MFIs in Latin America with its net worth skyrocketing to $1.6 billion. The institution’s growth and expansion between 2000 and 2007 had been aggressive, driven primarily by its retained earnings. Within this short period, it grew its borrower base from 60,000 to more than 800,000. The Compartamos experience shows the power of profit in boosting equity to finance both social and financial goals.

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As already discussed, I found that the equity-to-assets ratio positively associates with profitability (ROA). This finding contradicts that of Bogan (2012), who found a negative relationship between share capital as a percentage of assets and sustainability. She argues that her finding is consistent with those of Osterloh and Barrett (2007), who show that financial service association microfinance models, which harness local equity capital by selling shares, do not demonstrate sound screening and lending practices. Thus, share capital that includes local equity capital would not generate the profit incentive efficiencies of the typical lending institution. These findings are problematic, however, for several reasons.

First, Bogan’s (2012) focus was on share capital, which excludes other aspects of equity that impact financing decisions—aspects such as share premium, donated equity, retained earnings, reserves, and treasury shares. The difference between my equity definition and Bogan’s (2012) may be crucial in deciding the direction of the relationship between performance outcome and funding. Second, the findings from Osterloh and Barrett’s (2007) research on particular MFI factors and their impact on the institution share value focused on a very small geographical location in Kenya; they should not be generalized for global MFI outcomes unless conditions in Kenya are representative of the global environment. Third, both Osterloh and Barrett (2007) and Bogan (2012) focus on large MFIs as representative of all MFIs.

Given these three factors, a reasonable explanation for the positive association between equity funding and profitability could be that regulators may set minimums requirements for equity capital as a way of deterring excessive risk-taking, which in turn may affect MFI financing choices, with positive implications on profitability. Alternatively, profitable MFIs—and especially those legal charters that are not obliged to distribute profits—may generate additional equity by accumulating retained earnings. These equity forms are a cheap source of funding for the

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institutions and could be used to fund operational and developmental growth, and therefore the institutions’ profitability. My research strongly supports this explanation. Young and mature MFIs across all legal charters are more profitable than new MFIs. Apart from bank MFIs, all other legal charters are not obliged to distribute their retained earnings. Interestingly, the equity-to-assets ratio is very significantly and positively associated with ROA only for this group of MFIs—that is, for young and mature MFIs with credit union, NBFI, NGO, and rural bank legal structures.

Similarly, socially oriented investors who do not demand profit or dividends may direct them toward social outreach, thereby positively impacting social performance outcomes, as in the case of mature NBFIs and NGOs. Cases such as the Compartamos IPO make it possible to assert that investors can provide $30 billion annually to fund microfinance globally (Funk, 2007) against the $4 billion a year projected by the Consultative Group to Assist the Poorest in 2008. Indeed, the power of profit makes it possible to imagine serving more than one billion low-income customers—rather than the approximately 175 million families projected for 2015 (Daley-Harris, 2007).

MFIs that receive relatively higher donations show lower ROA. This finding generally holds for all MFIs, regardless of age group or legal charter. The negative association between ROA and donations is an important insight especially because it supports the profit-incentive theory. It also helps the microfinance industry, which supports the notion that MFIs should decrease their reliance on donations, soft loans, and other types of donor funding (Bogan, 2012). Donation funding can create moral hazard, high agency costs, and inefficiencies in MFI operations, with adverse consequences for profitability. Additionally, donations may increase incentives for risk shifting or lax risk-management styles that can also negatively affect profitability. Tchakoute

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Tchuigoua (2013) finds that donations are significantly correlated with past-due loans and tangible assets, indicating that donors or their mandates care about risk when they decide to give.

Scholars and practitioners alike have advanced the idea that donations are most beneficial when used to fund start-up costs for younger MFIs (Morduch, 2005). However, I did not find empirical evidence to support this assertion; the association between financial performance and the donation-to-assets ratio is not significant for new MFIs, regardless of legal charter and age grouping. Further, even the social performance outcomes do not seem to support the assertion that donations are beneficial for new MFIs. Indeed, the only significant relationship between donation funding and social performance outcomes was negative. Higher donations are associated with decreased ALB for new NGO MFIs and decreased NAB and PFB for new and young credit union MFIs, respectively.

Deposits are positively related mainly to social outcomes across age, but also to ROA on average. Deposits are low-cost, longer-term funds, and they are a far more stable source of funds than debts, which are usually short-term for most MFIs (Christen and Mas, 2009); they are therefore preferred to debt (Muriu, 2011). Deposits are a cheap source of funding for banks and other financial services institutions. They have a relatively low cost of capital and make the most sense for institutions with the option of raising capital by collecting savings deposits (Cull, Demirgu¨c-Kunt, and Morduch, 2009). Usually, the deposit-taking institution pays very low or no interest on the funds—thus the low cost. As long as there is no run on the institution, and the cost of mobilizing deposits is reasonably low, a significant portion of the deposits (the core) can become a long-term funding source for funding short- to long-term loans, guaranteeing the institution high- interest margins. Given all this, it is not surprising that higher rates of deposit significantly associate with higher MFI profitability.

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Also, in MFIs, deposits are viewed as financial products consisting of short-term demand deposits (savings accounts) or time deposits (remunerated savings accounts). From a financial intermediation viewpoint, deposits can be seen as a resource that MFIs use to fund their operations and make loans (Consultative Group to Assist the Poor [CGAP], 2011; Cull et al., 2009). Moreover, some deposit-taking MFIs use deposits as a tool to reinforce contracts. In this sense, deposits could be viewed as financial collateral required from borrowers to secure a loan (Armendáriz de Aghion & Morduch, 2004, 2010). In countries with better creditor protections and better law enforcement, deposits are likely less important as a tool for risk management. However, MFIs operate mostly in countries with weaker institutions for credit protection; in such countries, deposits would be more significant and could positively impact loan provision—or even bad debt—and therefore profitability.