This paper aims at examining the mediating role of market power on income diversification and performance nexus. Using 310 yearly observations drawn from a sample of 31 Kenyan commercial banks and panel data for the 2008–2017 periods, the study finds that market power significantly mediate the relationship between income diversification and performance. Thus, income diversification will have a larger impact on performance for banks with significantly high market power compared to those with low market power. Given the novelty of these findings, the study has implications for bank regulators, scholars and practitioners.
This article studies the relationship between portfolio quality and the financial sustainability of microfinance institutions in Kenya. The analysis is based on a panel dataset of 30 microfinance institutions in the period 2010 to 2018. The study is guided by institutional theory which is built on conformance and continuity. The study adopts an explanatory research design where a panel approach is used under positivist paradigm. The study finds that portfolio quality has a positive significant effect on the financial sustainability at 1% statistical significance level. Based on this finding, the study concludes that portfolio quality is an essential element of MFIs financial sustainability. The study recommends that MFIs managers should devise good collection policies to improve portfolio quality while lessening loan default rate. The portfolio quality may improve the overall profitability and enhance investor confidence in their strategic decision-making on refinancing. It is important to note in order to ensure financial inclusion; the stakeholders must be involved.
Interest rate instruments are typically priced by creating a non-arbitrage replicating portfolio in a risk-neutral framework. Bespoke instruments with timing, quanto1 and other adjustments often present arbitrage opportunities, particularly in complete markets where the difference can be monetized. To eliminate arbitrage opportunities we are required to adjust bespoke instrument prices appropriately, such adjustments are typically non-linear and described as convexity adjustments.
We review convexity adjustments firstly using a linear rate model and then consider a more advanced static replication approach. We outline and derive the analytical formulae for Libor and Swap Rate adjustments in a single and multicurve environment, providing examples and case studies for Libor In-Arrears, CMS Caplet, Floorlet and Swaplet adjustments in particular. In this paper we aim to review convexity adjustments with extensive reference to popular market literature to make what is traditionally an opaque subject more transparent and heuristic.
In the last three decades, foreign remittances flowing to Sub-Saharan Africa have grown more rapidly than the average for developing countries forming a significant component of external capital flows. Simultaneously, there has been an increase in the number of studies investigating the impact of these transfers on consumption and the general welfare of the receiving household. However, very few studies have examined the impact of foreign remittances on private sector investment in Sub-Saharan Africa, which is considered as having an inefficient banking sector. From this background, this study aims to investigate the impact foreign remittances on private sector investment and the moderating role of banking sector development. The study uses a sample of 15 Sub-Saharan African countries with data for the years 1986-2017. The findings of this study indicate that foreign remittances and banking sector development has a positive and statistically significant impact on private investment Sub-Saharan Africa. Moreover, the banking sector development has a moderating effect. These results suggest that foreign remittances are important sources of capital for private investment and it can efficiently fill the financing gaps of inefficient financial markets.
This paper studies the macroeconomic impact of economic freedom on foreign direct investments inflows in both global and regional panel analyses involving 156 countries through the period of 1995-2016. Unlike to prior literature, it includes often neglected nations such as Fragile and Conflict-Affected states, Sub-Saharan, Oceanian, and Post-Soviet countries. The paper finds a positive impact of economic freedom on FDI under fixed-effects model in global case where a unit change in economic freedom scales FDI inflows up to 1.15 units. More specifically, all 9 regions also refer to positive and significant impact of economic freedom on FDI. The highest impact is recorded in European countries, whereas the lowest ones are documented in Fragile-Conflict affected states, Sub-Saharan zone, and Oceanian countries.
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