Liquidity, Financial Health and Financial Performance in Village Credit Union

Abstract

This research aimed to measure the effect of liquidity and financial health to financial performance in microfinance institutions. Financial performance is the main indicator of financial sustainability in profit-oriented entity. Data of 94 village credit unions locally known as lembaga perkreditan desa (LPD) in Bali - Indonesia, over period of 2021 to 2023 was analysed using multiple linear regression. The result found that liquidity and financial health both have a positive impact on financial performance. Lower risk factor as the result of high liquidity and higher category of financial health shows improvement in financial performance. This finding contradicts values that higher loan distribution would lead to higher returns. This research has summarised key risk level in local microfinance institutions using financial health category measurement, just as CAMELS rating are used in commercial banks.