Microfinance institutions and the bank lending channel in Asia and Latin America

Abstract

ABSTRACT: The objective of this article is to analyse the effect of the bank lending channel of monetary policy on microfinance institutions (MFIs), which play an important role in the financial systems of many developing countries. Using a sample of 262 microfinance institutions from 18 developing countries from Asia and Latin America for the period 2004 to 2014, we find that microfinance institutions in the aggregate do not alter their loan supply after a monetary policy shift. Indeed, MFIs established as non-governmental or not-for-profit organizations respond in a direction contrary to that expected, lending more under a monetary tightening or less under a monetary expansion. Our results also show relevant differences between Asia and Latin America. MFIs in Asia tend to increase lending under a monetary tightening, but MFIs in Latin America show no change in lending.