The Impact of Macroeconomic on the Financial Performance of the Microfinance Institutions in Java Island, Indonesia

16 Pages Posted: 14 Mar 2013

See all articles by Bambang Hermanto

Bambang Hermanto

Universitas Indonesia - Graduate School of Management

Definta Astuti

University of Indonesia (UI)

Date Written: March 14, 2013

Abstract

This study aims to analyze the macroeconomic impacts of financial performance of microfinance institutions (MFIs) in Java, Indonesia. The financial performance is measured by profitability and asset quality, while macroeconomic indicators are measured by GDP growth and inflation rate. This study uses quarterly financial data from December 2011 to September 2012 of 858 MFIs in Java, which consists of conventional rural banks and Islamic rural banks. The findings show that the MFIs in East Java have the biggest profitability and the lowest NPL ratio in Java. Graphically, in Java Island, the raise of inflation is inconsistent in decreasing the MFIs’ profitability and increasing the MFIs’ NPL ratio. In addition, the findings also show that the location has an impact on the financial performance of MFIs in Java. Empirically, there is no significant impact of macroeconomic indicators on the MFIs’ profitability, but there is a negative impact of inflation on the MFIs’ NPL ratio, and also there is a significant difference in the MFIs’ financial performances in East Java.

Keywords: financial perfomance, macroeconomic, microfinance, rural banks

JEL Classification: G21

Suggested Citation

Hermanto, Bambang and Astuti, Definta, The Impact of Macroeconomic on the Financial Performance of the Microfinance Institutions in Java Island, Indonesia (March 14, 2013). Universitas Indonesia, Graduate School of Management Research Paper No. 13-08, Available at SSRN: https://ssrn.com/abstract=2233203 or http://dx.doi.org/10.2139/ssrn.2233203

Bambang Hermanto (Contact Author)

Universitas Indonesia - Graduate School of Management ( email )

Depok, West Java 16424
Indonesia

Definta Astuti

University of Indonesia (UI) ( email )

UI Campus
Depok, West Java 16424
Indonesia

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