Capital structure and financial sustainability of MFIs in Rwanda, A comparative study of MFIS and SACOOs (2013-2017)

Abstract

Financial sustainability of MFIs has become an issue of discussion since 2008’s microfinance crisis. Further, commercial source of capital, expansion of financial services and the emergence of cooperative financial institutions and SACCOs have also attracted the attention towards financial sustainability in microfinance sector. The aim of this study was to investigate the effect of capital structure on financial sustainability of MFIs in Rwanda; research data was obtained from Audited financial statements of 3 MFIs and 8 SACCOs, quantitative approach was employed to identify the factors that affect the financial sustainability of MFIs in Rwanda and multiple linear regression was used to analyze and test the relationship between dependent and dependent variables of the study. Data was analyzed using multiple regression models and SPSS version 20 as the data analysis tool. Based on the findings the analysis of variance (ANOVA) the independent predictor variables influenced the dependent variable insignificantly at 5% significance level. Among the four independent variables; debt, deposits, retained earnings and ordinary share capital were statistically insignificant variable at 5% but at different magnitude in MFIs Ltd and SACCOs. Findings in this study revealed that debt has not uniformly affected financial sustainability variables among MFIs Ltd and SACCOs between 2013 and 2017. In MFIs, debt negatively affected OSS, and ROA. However, it has been positively affected FSS. In SACCOs, debt has positively affected OSS and ROA while negatively affected FSS. The study found that between 2013 and 2017 In MFIs Ltd, deposits, insignificantly affected all indicators of financial sustainability i.e. OSS, FSS and ROA. In contrast however, in SACCOs, deposits have negatively affected OSS, FSS and ROA. Further, retained earnings significantly affected all indicators of financial sustainability i.e. OSS, FSS and ROA in MFIs; equally important, by the same period in SACCOs, retained earnings also negatively affected OSS, FSS and ROA. Thus the study concluded that the effect of debt, retained earnings, deposits and ordinary share capital on financial sustainability indicators, differ between MFIs Ltd and SACCOs and recommends that SACCOs should utilize any borrowing opportunity, are encouraged to employ