Institutional Environment and Microfinance Performance in Sub‐Saharan Africa

Abstract This paper explores the impact of the institutional environment on the performance of 291 microfinance institutions in 34 sub‐Saharan Africa countries during the period 2006 to 2014, by analysing the unbalanced panel data using fixed effects and generalized method of moments (GMM) estimation techniques. The panel regression results demonstrate strong evidence that a strong institutional environment has a positive effect on the performance of microfinance institutions in sub‐Saharan Africa. More specifically, the findings reveal a positive and significant relationship between business freedom and microfinance performance in sub‐Saharan Africa. These vital findings not only provide useful information to policy makers and key microfinance industry players, but also highlight the impact that institutional qualities have on microfinance performance.