3.

Define Debt Capital:

Debt capital refers to funds or assets generated by borrowing from a lender. Usually, a business
owner takes on debt to get capital. For example, traditional bank loans are debt capital (Abiolu,
2018). According to new research, the business owner receives funding for his or her business
under the agreement that the load will be repaid back, usually with interest.

4.
High debt/equity ratio contributes to improvement in firms’ financial performance in
terms of liquidity and profitability (Adesina et al., 2015). Relatedly, Kpwe (2017) affirms that
capital structure significantly affects the financial performance of MFIs. Nevertheless, other
scholars discount the relevance of capital structure in boosting the profitability and financial
performance of firms (Mutenheri and Munangagwa, 2015; Ikapel and Kajirwa, 2017).
The relationship of debt capital to the funding of microfinance institutions or MFIs is that
the money returned by borrowers can be used for the new debt capital released by the MFIs.
Through debt capital, money circulates in the institution. If the debt capital released by the MFIs
are not paid within the given amount of time, money is lost, profitability is lessened and
sustainability is endangered. Therefore, debt capital is very much connected to the funding of
MFIs as it regulates and keeps the institution running.

References:
Abiolu, B. (2018, August 20). What is Debt Capital? An Explanation for Aspiring

Entrepreneurs. Small Business Financing Blog. https://www.lencred.com/blog/what-is-

debt-capital/

Debt Capital vs Equity Capital - Which is the Best Option. (2017, July 19). Intrepid Private

Capital Group Financial News Blog. https://www.intrepidexecutivegroup.com/blog/debt-

capital-vs-equity-capital/

Orichom, G., & Omeke, M. (2020, November). Capital structure, credit risk management and

financial performance of microfinance institutions in Uganda (C28FCA865659).

Academic Journals. https://doi.org/10.5897/JEIF2020.1096