Lending and business cycle: Evidence from microfinance institutions

Analyzing a sample of 5996 firm-year observations from 1444 microfinance institutions (MFIs) worldwide over the 2001–2014 period, we find evidence that the cyclical behavior of MFIs’ lending documented in previous literature is not homogenous across MFI regulated status and lending categories. Among other things we find evidence that regulated MFIs (mostly comprised of privately-owned-MFIs) drive the cyclical behavior of lending in the microfinance industry. This might be due to regulatory pressures and the high exposure of these MFIs to economic uncertainties. Business cycles affect non-regulated and pro-poor MFIs to a lesser degree. Additionally, our findings reveal that individual loan contracts are more pro-cyclical than group loan contracts.