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Expand or avoid: microfinance credit risk and climate vulnerability

Lookup NU author(s): Dr Iftekhar AhmedORCiD

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Abstract

This study investigates the association between climate vulnerability, geographic expansion, and credit risk in microfinance institutions (MFIs) loan portfolios. It is motivated by inconclusive evidence concerning the climate vulnerability-bank risk nexus and the geographic expansion-bank risk nexus. Applying system generalized method of moments (GMM) to a sample of global MFIs over the period 1999–2019, we report evidence that climate vulnerability and geographic expansion increase MFI credit risk. Our results indicate that MFIs operating in climate-vulnerable countries or undergoing geographical expansion tend to maintain higher financial buffers to absorb potential losses. Furthermore, we also report evidence of increased institutional credit risk for MFIs with wider geographical expansion and larger loan portfolios. The risk is more pronounced for non-shareholder-owned MFIs compared to shareholder-owned MFIs. This suggests MFI expansion into climate prone regions is curtailed in the case of shareholder-owned MFIs to minimize credit risk, overshadowing the microfinance mission to provide banking services to the poorest and the most vulnerable. In addition, we report evidence that climate vulnerability moderates the consequences of geographic diversification in the microfinance industry.

Publication metadata

Author(s): Ahmed I, Diaz-Rainey I, Nguyen DTT, Roberts H

Publication type: Article

Publication status: Published

Journal: Research in International Business and Finance

Year: 2026

Volume: 83

Print publication date: 01/03/2026

Online publication date: 24/12/2025

Acceptance date: 23/12/2025

ISSN (print): 0275-5319

ISSN (electronic): 1878-3384

Publisher: Elsevier

URL: https://doi.org/10.1016/j.ribaf.2025.103268

DOI: 10.1016/j.ribaf.2025.103268

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