![]() Interest rate and lag of GDP have a statistically significant positive short-run effect on profitability. The results of the co-integration test indicated that there is no long-run relationship between interest rate, foreign exchange rate and profitability. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were used to determine both short-run and long-run effect of interest rate and foreign exchange rate on profitability respectively. In the analysis of data, the study employed descriptive statistics, pairwise correlation matrix, unit root and Johansen test for co-integration. Secondary data was used in the course of this study, which was generated from the quarterly audited financial statements of FINCA microfinance bank from 2010 to 2020. The study employed a quantitative research approach and time-series research design. The profitability of microfinance institutions (MFIs) was measured by ROAA. Market risk is divided into interest rate risk and foreign exchange rate risk whose indicators were net interest margin and foreign exchange gains or losses respectively while having Gross Domestic Product (GDP), inflation, and money supply as control variables. ![]() This study assessed the influence of market risk on the profitability of microfinance institutions (MFIs) in Tanzania.
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