Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee
This study investigates the influence of credit risk on the financial performance of microfinance institutions (MFIs) in Pakistan, with a particular focus on the moderating role of the Board Risk Committee Index (RCINDEX). Using panel data from 19 microfinance banks spanning the years 2012 to 2021,...
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| Language: | en |
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Human Resource Management Academic Research Society
2025
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| Online Access: | http://ir.unimas.my/id/eprint/50002/2/Credit%20Risk.pdf http://ir.unimas.my/id/eprint/50002/ https://hrmars.com/index.php/IJARBSS/article/view/26079/Credit-Risk-and-Microfinance-Performance-in-Pakistan-The-Moderating-Role-of-Board-Risk-Committee http://dx.doi.org/10.6007/IJARBSS/v15-i9/26079 |
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| _version_ | 1847096998650445824 |
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| author | Khalid, Hafeez Salawati, Sahari Burhan, Ahmed |
| author_facet | Khalid, Hafeez Salawati, Sahari Burhan, Ahmed |
| author_sort | Khalid, Hafeez |
| building | Centre for Academic Information Services (CAIS) |
| collection | Institutional Repository |
| content_provider | Universiti Malaysia Sarawak |
| content_source | UNIMAS Institutional Repository |
| continent | Asia |
| country | Malaysia |
| description | This study investigates the influence of credit risk on the financial performance of microfinance institutions (MFIs) in Pakistan, with a particular focus on the moderating role of
the Board Risk Committee Index (RCINDEX). Using panel data from 19 microfinance banks spanning the years 2012 to 2021, the study applies fixed-effects regression with robust
standard errors to assess the relationships among key variables. Credit risk is proxied by Portfolio at Risk (PAR) and Non-Performing Loans (NPL), while financial performance is measured using Return on Assets (ROA), Return on Equity (ROE), and Operational SelfSufficiency (OSS). The RCINDEX is constructed as a standardized composite of risk committee
size, independence, and competence. The findings reveal that both PAR and NPL are
significantly negatively associated with MFI performance, indicating that increased credit risk
compromises profitability and sustainability. However, the RCINDEX exhibits a significant
positive moderating effect, suggesting that well-structured risk committees can mitigate the
adverse consequences of credit risk. These results align with agency and stakeholder theories,
which highlight the critical role of governance mechanisms in managing risk and enhancing
institutional performance. The study offers practical implications for MFI regulators, boards
of directors, and policymakers seeking to strengthen governance frameworks and ensure
financial sustainability in emerging economies. |
| format | Article |
| id | my.unimas.ir-50002 |
| institution | Universiti Malaysia Sarawak |
| language | en |
| publishDate | 2025 |
| publisher | Human Resource Management Academic Research Society |
| record_format | eprints |
| spelling | my.unimas.ir-500022025-10-22T00:50:55Z http://ir.unimas.my/id/eprint/50002/ Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee Khalid, Hafeez Salawati, Sahari Burhan, Ahmed HG Finance This study investigates the influence of credit risk on the financial performance of microfinance institutions (MFIs) in Pakistan, with a particular focus on the moderating role of the Board Risk Committee Index (RCINDEX). Using panel data from 19 microfinance banks spanning the years 2012 to 2021, the study applies fixed-effects regression with robust standard errors to assess the relationships among key variables. Credit risk is proxied by Portfolio at Risk (PAR) and Non-Performing Loans (NPL), while financial performance is measured using Return on Assets (ROA), Return on Equity (ROE), and Operational SelfSufficiency (OSS). The RCINDEX is constructed as a standardized composite of risk committee size, independence, and competence. The findings reveal that both PAR and NPL are significantly negatively associated with MFI performance, indicating that increased credit risk compromises profitability and sustainability. However, the RCINDEX exhibits a significant positive moderating effect, suggesting that well-structured risk committees can mitigate the adverse consequences of credit risk. These results align with agency and stakeholder theories, which highlight the critical role of governance mechanisms in managing risk and enhancing institutional performance. The study offers practical implications for MFI regulators, boards of directors, and policymakers seeking to strengthen governance frameworks and ensure financial sustainability in emerging economies. Human Resource Management Academic Research Society 2025-09-16 Article PeerReviewed text en http://ir.unimas.my/id/eprint/50002/2/Credit%20Risk.pdf Khalid, Hafeez and Salawati, Sahari and Burhan, Ahmed (2025) Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee. International Journal of Academic Research in Business and Social Sciences, 15 (9). pp. 1008-1022. ISSN 2222-6990 https://hrmars.com/index.php/IJARBSS/article/view/26079/Credit-Risk-and-Microfinance-Performance-in-Pakistan-The-Moderating-Role-of-Board-Risk-Committee http://dx.doi.org/10.6007/IJARBSS/v15-i9/26079 |
| spellingShingle | HG Finance Khalid, Hafeez Salawati, Sahari Burhan, Ahmed Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title | Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title_full | Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title_fullStr | Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title_full_unstemmed | Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title_short | Credit Risk and Microfinance Performance in Pakistan: The Moderating Role of Board Risk Committee |
| title_sort | credit risk and microfinance performance in pakistan: the moderating role of board risk committee |
| topic | HG Finance |
| url | http://ir.unimas.my/id/eprint/50002/2/Credit%20Risk.pdf http://ir.unimas.my/id/eprint/50002/ https://hrmars.com/index.php/IJARBSS/article/view/26079/Credit-Risk-and-Microfinance-Performance-in-Pakistan-The-Moderating-Role-of-Board-Risk-Committee http://dx.doi.org/10.6007/IJARBSS/v15-i9/26079 |
| url_provider | http://ir.unimas.my/ |