The Effect of Loan Portfolio Diversification on the Performance of Microfinance Institutions in Cameroon

Abstract

This study investigates the effect of loan portfolio diversification on the performance of microfinance institutions. 32 MFIs are selected from various regions employing the quantitative techniques approach. Quantitative data were gathered through questionnaires and performance was also through questionnaires from the MFIs. The research design integrates a cross-sectional analysis to capture a snapshot of current diversification practices on financial performance indicators such as return on assets (ROA) and return on equity (ROE). The findings indicate that MFIs with diversified loan portfolios tend to exhibit better financial performance and lower risk levels, suggesting that diversification is a viable strategy for enhancing the stability and profitability of microfinance institutions.