How Does Deleveraging Affect Outreach Productivity of Mfis in China? New Evidence from Dynamic Threshold Role of Green Finance

Abstract

The literature suggests ambiguity regarding the impact of microfinance institutions (MFIs) deleveraging on their outreach for promoting financial inclusion, notably within the context of China's economic transition emphasizing credit reallocation toward small businesses. This study investigates the relationship between MFIs' deleveraging and outreach productivity, considering the threshold effects of green finance and macroprudential measures. Employing an improved dynamic threshold model with system GMM estimation, the analysis utilizes a panel dataset of 204 Chinese MFIs spanning from 2012 to 2021. The empirical findings indicate that: firstly, MFIs' deleveraging enhances their outreach productivity directly; secondly, the presence of a threshold effect in green finance leads to a nonlinear impact of deleveraging on MFIs' outreach productivity, where the effect shifts from negative to positive as green finance increases up to the threshold; thirdly, the threshold effect of macroprudential green finance also exhibits a nonlinear relationship with MFIs' deleveraging, but the positive impact is statistically significant only within a specific range of green finance below the threshold. These results bear relevant policy implications.