CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE: THE CASE OF MICROFINANCE INSTITUTIONS OF INDONESIA

Abstract

Microfinance institutions serve two purposes: collection and distribution of funds. Microfinance enterprises use principal, mandated, and voluntary deposits to raise capital. As a function, microfinance institutions channel funds through credit supply to their members. The financial administration of microfinance institutions must be equitable, transparent, and accountable. This study aimed to examine the capital structure's effect on the profitability of cooperative microfinance in East Java. The methodology utilized is quantitative. Approximately 150 statistics are collected through the cooperative's financial report. Multiple Linear Regression (MLR) is used within SPSS for the analysis. The findings demonstrated that capital structure greatly affects profitability (RoE and RoA). In this analysis, the capital structure comprises short-term debt, long-term debt, equity financing, revenue growth, asset capacity, and the company's age. Short-term debt and equity financing variables negatively affect profitability, whereas long-term debt, revenue growth, asset capacity, and organization age have a favorable effect. Thus, it can be argued that one of the benefits of microfinance institutions is that they provide their members with lending and borrowing opportunities on a member-to-member basis.