Is the model “loans‐plus‐savings” better for microfinance in Eastern Europe and Central Asia? A propensity score matching comparison

Abstract

Microfinance institutions are gradually evolving into multiservice organizations offering not only loans but also savings, and other financial and nonfinancial services. We contribute to the literature aimed at identifying how combining credit with savings affects outreach and sustainability in microfinance institutions (MFIs). We apply the propensity score matching method as well as its augmented dose-response version to compare the performance of loans-plus-savings MFIs with that of lending-only in a sample of 710 observations from Eastern Europe and Central Asia. Owing to our unique capital structure data, we control for the use of subsidized capital, which related work ignores while existing evidence points to tradeoffs between subsidies and savings. We find that financial performance and breadth of outreach are positively associated with savings mobilization, while the evidence on depth of outreach points to a possible mission drift. J E L C L A S S I F I C A T I O NG21, F30, O16 K E Y W O R D S economies of scope, Microfinance institutions, performance, propensity score matching, savings | 1311 KHACHATRYAN eT Al.Szafarz, 2011), which creates new forms of exclusion, this question is important for policymakers, practitioners, and scholars. The third contribution is to the discussion on mission drift by establishing differences in depth of credit outreach between savings-offering and loan-only MFIs.We use panel data from 157 MFIs operating in 19 countries in the ECA region reported by individual MFIs in the Microfinance Information Exchange (MIX) over 5 years. The capital structure variables are collected from a unique database provided by a grass-root network Microfinance Centre (MFC) and available only for 2005 to 2009 period. This explains why our panel is limited to the given period of time. We apply semiparametric quasi-experimental PSM, as well as dose-response function approaches to estimate the impact of offering savings on financial sustainability and credit outreach of MFIs. Estimation of the dose-response function (Guardabascio & Ventura, 2014) provides an opportunity to take into account the continuous nature of treatment, which in our case is the relative share of deposits. In both settings we use data on capital structure of MFIs, operations profile (age, outreach direction, profit status, risk profile), and country level macro data.Our main findings suggest that the simultaneous delivery of loans and savings is associated with better financial performance measured by return on asset (ROA) by about 3 percentage points. We also find that MFIs offering savings service have over 5,000 more borrowers, likely owing to scale economies. At the same time, those MFIs offering savings seem to focus more on richer borrowers (have lower depth of outreach, measured by the average loan size divided by the country's gross national income (GNI) per capita). These results support the ideas for mission drift for savings-collecting MFIs in ECA region. We also note that in most countries in the region, only regulate...

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