REGULATORY-CONSTRAINED STRATEGIC MANAGEMENT AND STRATEGIC STABILITY OF MICROFINANCE INSTITUTIONS: EVIDENCE FROM A DYNAMIC PANEL MODEL

This study examines the strategic stability of microfinance institutions (MFIs) operating under regulatory constraints within the context of an emerging financial ecosystem, with a specific focus on Uzbekistan. The rapid expansion of the microfinance sector, coupled with increasing integration into digital financial infrastructures, necessitates the development of adaptive and risk-sensitive strategic management models. The paper proposes a regulatory-constrained strategic management framework that captures the dynamic interaction between capital adequacy, credit risk (non-performing loans), and profitability as core determinants of strategic stability. To operationalize this framework, a composite Strategic Stability Index (SSI) and Prudential Pressure Index (PPI) are developed, enabling a multidimensional assessment of institutional performance under prudential regulation. The empirical analysis is based on panel data of microfinance institutions in Uzbekistan over the period 2017–2025. Methodologically, the study employs Fixed Effects and Random Effects models, as well as the System Generalized Method of Moments (System-GMM), to account for dynamic relationships and address endogeneity concerns. The results indicate that integration into financial ecosystems and digital transformation significantly enhance strategic stability, whereas excessive prudential pressure and increasing levels of non-performing loans exert a negative impact. Furthermore, the presence of strategic inertia confirms the dynamic nature of strategic management processes in MFIs. The study contributes to the literature by introducing a novel regulatory-constrained strategic management model and providing empirical evidence from an underexplored emerging market. The findings offer practical implications for policymakers and MFI managers in designing resilient and adaptive strategic frameworks in the era of digital finance.