Navigating the risk-return nexus: Unraveling the dynamics in the gross loan portfolio of microfinance institutions and its implications to sustainability and environmental impact
Paper Details
Navigating the risk-return nexus: Unraveling the dynamics in the gross loan portfolio of microfinance institutions and its implications to sustainability and environmental impact
Abstract
Microfinance institutions (MFIs) have garnered significant attention in the Philippines for their role in promoting financial inclusion and reducing poverty. However, the lack of a comprehensive understanding of the risk-return dynamics in MFIs’ gross loan portfolios can have detrimental effects. To address this issue, this study navigated the risk-return nexus in MFIs and explored the quality management strategies employed by them. The study utilized a mixed-method research design, specifically the explanatory sequential design, and was conducted in Occidental Mindoro, Philippines. Thirty-two loan officers participated in the quantitative analysis, while nine loan officers were involved in the qualitative analysis. The data were analyzed using the Pearson correlation coefficient and thematic analysis. The findings revealed a significant negative correlation between the risk level associated with MFIs’ loan portfolios and the financial returns generated by these institutions through said portfolios. Additionally, three themes emerged for the quality management strategies’ contributing to higher returns while effectively managing risk in MFIs’ gross loan portfolios: (1) Proactive Risk Assessment and Mitigation, (2) Robust Monitoring and Reporting Mechanisms, and (3) Client Education and Support. To enhance the financial performance of MFIs, it is recommended to continue implementing these three key quality management strategies. By adopting these strategies, microfinance institutions can improve their risk management practices and achieve higher financial returns. The study’s findings highlight the importance of aligning financial objectives with social and environmental goals, emphasizing the need for responsible and sustainable lending practices in the microfinance sector.
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Jason G. Ramirez, Nicole T. Gante, 2023. Navigating the risk-return nexus: Unraveling the dynamics in the gross loan portfolio of microfinance institutions and its implications to sustainability and environmental impact. Int. J. Biosci., 22(6), 67-77.
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