Effect of Capital Structure on the Financial and Social Performance of Indian Microfinance Institutions

This study investigates the effect of capital structure on the social and financial performance of microfinance institutions (MFIs), which have a double bottom line objective of outreach and financial sustainability. Generalized method of moments (GMM) and instrumental variable (IV) estimation were used on the panel data set of 46 non-banking finance companies (NBFCs)-MFIs from 2013-2014 to 2018-2019. NBFC-MFIs are formed after the transformation of NGO-MFIs to access market-based sources of funds to increase their outreach. The results show that Indian MFIs are highly leveraged and have bidirectional causality between capital structure and financial and social performance variables. The study found a positive and significant relationship between capital structure and social and financial dimensions of the NBFC-MFIs. It shows that NBFC-MFIs can maintain the dual objectives even after transformation. The study contributes to the scarce literature by emphasizing the role of capital structure on the performance of MFIs, which are playing an essential role in financial inclusion.