Income Smoothing in Microfinance Institutions: The Effect of Gender on the Board of Directors and the Impact of the Financial Crisis

This chapter investigates the practice of income smoothing in microfinance institutions (MFIs) and some factors that can be considered as influencing this reality, including the recognition of loan loss provisions (LLP). The analysis is conducted on a global panel data of 1833 MFIs in 112 countries for the period 2003–2019, using a two-step methodology. First, considering the coefficient proposed by Eckel (1981), data are obtained suggesting that 70.3% of the MFIs in the sample tend to smooth their results. In a second step, based on estimates from a static panel model, we obtain empirical evidence that MFIs tend to use LLP for income smoothing purposes. Contrary to expectations, the 2007 financial crisis does not significantly affect the constitution of LLP. Additionally, the results seem to suggest a significant negative impact of the financial crisis on the practice of income smoothing through LLP. On the other hand, the presence of women on the boards of directors of MFIs does not seem to inhibit the use of LLP for the purpose of smoothing results.